How a Saudi pipeline shutdown became a global inflation threat
Brent rose as much as 3.7% and traded at $107.95 a barrel, while West Texas Intermediate reached $103.19 after Saudi Arabia suspended its East-West pipeline.[3] The route can carry about seven million barrels per day from the Eastern Province to the Red Sea, allowing exports to bypass disruption in the Strait of Hormuz.[3] Saudi Arabia has not disclosed the extent of any damage or when flows will resume, while estimates for restoring the route range from days to weeks.[3][4]
The closure removes a major alternative to Hormuz at a time when regional shipping is already constrained, potentially exposing as much as 4% of global oil supply once inventories at Yanbu are depleted.[4] Higher crude and record US diesel prices add to inflation pressure and complicate the Federal Reserve’s rate decision.[2][4]
Key insights
- Saudi Arabia’s East-West pipeline has full pumping capacity of about seven million barrels per day and connects eastern production sites with the Red Sea port of Yanbu.[3]
- Traders and Saudi buyers estimated that Yanbu had enough stored oil to maintain exports for only five to seven days if the pipeline remained closed.[4]
- After that inventory buffer, as much as 4% of global oil supply could be jeopardized in addition to barrels already lost through Hormuz disruption.[4]
- Oman postponed a planned meeting between Iran and other Gulf powers, weakening near-term hopes for a diplomatic response to the transit crisis.[2][4]