The Oil Market’s Backup Plan Is Breaking Down

For decades, the biggest geopolitical risk hanging over the oil market has been the Strait of Hormuz. Before the conflict in Iran began in late February, roughly one-fifth of the world’s petroleum liquids moved through the narrow waterway separating Iran from Oman, making it the most important oil chokepoint in the world. Now that traffic through Hormuz has been severely disrupted, Gulf producers have increasingly relied on the limited alternatives available to keep oil moving. For Saudi Arabia, the most important of those alternatives is the East-West Pipeline, which carries crude across the Arabian Peninsula to the Red Sea. Now that escape route is under attack as well. Drone strikes forced Saudi Arabia to shut the pipeline after it had been moving roughly 4 million barrels per day to the Red Sea port of Yanbu, equivalent to about 4% of global oil supply. Reuters reports that available inventories at Yanbu may be sufficient to maintain recent exports for only five to seven days if pipeline operations do not resume. Repair estimates vary considerably, with one industry source suggesting a full restoration could take five to six weeks, although partial operations might resume sooner. The problem does not end at Yanbu. Iran-aligned Houthi forces have advanced along Yemen’s Red Sea coast and reached Perim Island, which sits in the Bab el-Mandeb Strait at the southern entrance to the Red Sea. The latest Houthi advance puts them in a stronger position to threaten another of the world’s critical energy corridors at exactly the time Saudi Arabia is relying more heavily on Red Sea exports. The primary route around Hormuz now leads toward a second chokepoint facing its own escalating security risk. The Importance of the East-West Pipeline Under normal conditions, the Strait of Hormuz carries an extraordinary concentration of global energy trade. EIA data show that oil flows through Hormuz averaged 20.9 million barrels per day during the first half of 2025, equivalent to about 20% of global petroleum liquids consumption. Saudi Arabia and the United Arab Emirates have pipelines capable of bypassing the strait, but EIA estimates that together they could provide only about 4.7 million barrels per day of bypass capacity. That is substantial, but still only a fraction of normal Hormuz traffic. Saudi Arabia’s East-West Pipeline is the most important of those alternatives. It carries crude from the kingdom’s eastern producing region across the Arabian Peninsula to Yanbu, allowing Saudi oil to reach the Red Sea without passing through Hormuz. Under ordinary circumstances, that redundancy provides insurance against disruptions in the Persian Gulf. During the current conflict, however, the pipeline has become a major artery for maintaining exports while the normal route remains severely constrained. The shift is visible in the transportation data. The latest EIA figures show that oil flows through Hormuz fell from 21.6 million barrels per day in the fourth quarter of 2025 to just 4.9 million barrels per day in the second quarter of 2026. Over the same period, flows through Bab el-Mandeb increased from 5.4 million to 8.1 million barrels per day. The global oil transportation system has already been significantly rerouted in response to the conflict. That makes an attack on the East-West Pipeline more consequential than it would be under normal conditions. Backup infrastructure becomes most valuable when the primary route fails, and that is precisely when this pipeline has been hit. Earlier this year, I wrote in Forbes that Iran’s most powerful strategic weapon was not necessarily a nuclear bomb, but the geography it controls around the Strait of Hormuz. The latest attack extends that lesson beyond Hormuz itself, because infrastructure built to reduce dependence on one chokepoint can create new vulnerabilities elsewhere. Storage Can Only Buy Time Saudi Arabia maintains substantial crude inventories at Yanbu, so the pipeline shutdown does not immediately halt exports from the port. But storage can replace pipeline flows only temporarily. Current inventories at Yanbu are estimated to be sufficient for about five to seven days at recent export rates, while additional Saudi crude stored at Egyptian ports provides another limited buffer. If repairs take weeks rather than days, those inventories will eventually become a constraint. Saudi production has already fallen sharply during the conflict. The kingdom told OPEC that output dropped to 6.2 million barrels per day in August from 10.9 million barrels per day in February. If the pipeline remains offline for an extended period, Saudi Arabia could face additional difficulty maintaining exports even though it still possesses enormous oil reserves. Having oil underground is not the same thing as being able to deliver it when pipelines, ports and shipping routes are impaired. Another Chokepoint At The Other End Even getting crude to Yanbu solves only part of the problem. Tankers leaving the Red Sea still have to reach their customers, and cargoes headed toward Asia generally pass through Bab el-Mandeb between Yemen and the Horn of Africa. Roughly 7% of global petroleum supplies pass through the strait, and the Houthis have already demonstrated an ability to disrupt commercial shipping in the region. Their latest advances increase the risk around a route Saudi Arabia now needs more than ever. This does not mean Bab el-Mandeb will necessarily be closed. Shipping does not have to stop completely to impose significant economic costs, because higher insurance rates, vessel diversions and longer routes around Africa consume both time and tanker capacity. The strategic problem is that Iran has demonstrated its ability to disrupt the primary export route through Hormuz on the eastern side of the Arabian Peninsula, while Iran-aligned forces can threaten shipping near Bab el-Mandeb on the western side. Between those two chokepoints lies the pipeline intended to give Saudi Arabia an alternative when Hormuz becomes unreliable. What It Means For Oil Prices Oil markets are already reflecting the increased strain. Brent crude settled Friday at $104.61 per barrel, while West Texas Intermediate finished at $100.05. Both benchmarks gained more than 8% for the week despite falling Friday after reports of possible diplomatic talks over shipping through Hormuz. Friday’s oil-market report showed how quickly prices have responded as attacks spread beyond the original Gulf shipping routes. There are still forces preventing an even larger price spike. High energy prices can weaken demand, production outside the Persian Gulf provides an important buffer, and inventories have helped compensate for disrupted supply. But those cushions are finite, and every additional infrastructure problem leaves the market with fewer alternatives if something else goes wrong. That is why the East-West Pipeline repair timeline matters so much. If Saudi Arabia restores substantial capacity quickly, the shutdown may ultimately become another temporary shock in an exceptionally volatile year. If repairs stretch into several weeks while pressure around Bab el-Mandeb continues to build, another meaningful portion of the oil still reaching global customers could come under threat. The market is effectively discovering how much redundancy remains after both the primary route and its most important alternative are placed under pressure. The Bigger Picture For decades, discussions about Middle East energy security centered on what would happen if Iran closed or seriously disrupted the Strait of Hormuz. Producers responded by building pipelines, storage facilities and alternative export routes, and those investments have helped soften the effects of the current crisis. But bypass infrastructure does not eliminate geopolitical risk. It moves energy through a different collection of pipelines, ports and shipping lanes, each with vulnerabilities of its own. That is the broader lesson from the latest attacks. Energy security depends not simply on possessing oil, but on having enough redundancy to produce, transport and deliver it when part of the system fails. The oil market has already learned how vulnerable the Strait of Hormuz can be. It is now discovering that the escape route around Hormuz has vulnerabilities of its own. By Robert Rapier More Top Reads From Oilprice.com

Saudi Arabia’s oil supply crisis is rapidly becoming Europe’s problem. The September 10 attacks on Saudi Arabia’s East-West Pipeline struck the system at multiple locations and damaged at least one pumping station, forcing Riyadh to shut down the Kingdom’s critical alternative to the Strait of Hormuz. The 1,200-kilometer Petroline can carry around 7 million barrels per day from Saudi Arabia’s eastern producing regions to Yanbu on the Red Sea. Since the war effectively closed Hormuz, it has become one of the most important pieces of energy infrastructure in the world. Kpler estimates the pipeline had been moving roughly 4 million bpd around Hormuz before the attack. A prolonged outage could ultimately threaten 3.5–4 million bpd of Saudi crude exports. The figure is below Petroline’s nameplate capacity because Saudi Arabia can still export some crude from eastern terminals such as Ras Tanura, despite the severe constraints on Gulf shipping. The immediate problem is storage. Kpler estimates crude inventories at Yanbu have fallen below 15 million barrels, down from almost 21 million barrels in July and near their lowest levels since 2018. At an export rate of 3.5 million bpd, that represents little more than four days of theoretical supply. Aramco can also draw on its global storage network, but sustained exports from the Red Sea ultimately require fresh crude to reach Yanbu. The bigger danger, however, is where the conflict goes next. Saudi Arabia says the drones that attacked Petroline originated from Iraq, raising the possibility of retaliation against Iran-aligned Iraqi militias. Meanwhile, another front is rapidly developing in Yemen. Related: Russia Extends Diesel Export Ban Through October After sweeping gains along Yemen’s Red Sea coast and capturing Mokha, Houthi forces are reportedly building up troops and equipment around Marib, raising fears of another major offensive. Marib is particularly important because it remains one of the internationally recognized Yemeni government’s principal strongholds and contains major oil and gas fields, military bases and an important power station. "In Marib, the last major city in northern Yemen still under the control of the internationally recognized government, tribal mediation efforts are currently underway to hand the city over peacefully to Ansar Allah, amid sporadic clashes," Marib could become a tipping point in… https://t.co/8gdAX6zXBc — OilPrice.com (@OilandEnergy) September 14, 2026 Aden does not appear to be the obvious immediate objective. Capturing and holding southern Yemen would be considerably more difficult. Marib and Bab el-Mandeb offer greater strategic leverage: Marib threatens the remaining northern power base and energy assets of the Saudi-backed government, while control around Bab el-Mandeb increases Houthi influence over one of the world’s most important maritime chokepoints. For energy markets, the concern is that the conflict is moving steadily closer to producing assets. Pipelines, pumping stations, ports and tankers have already come under attack. An escalation toward Saudi processing facilities such as Abqaiq—or ultimately producing fields themselves—would represent a much larger global supply shock. Washington, meanwhile, appears reluctant to open another front. U.S. officials reportedly met Houthi leaders in Oman over the weekend and received assurances that the Houthis would continue honoring their 2025 ceasefire with Washington and would not target U.S. shipping. Saudi-linked vessels, however, remain considered targets by the group. The Trump administration has so far declined to intervene militarily against the Houthi advance, increasing pressure on Riyadh either to negotiate or assemble broader regional support. For Europe, the consequences are already becoming tangible. Saudi Aramco has informed European customers that some September-loading cargoes will be cancelled or postponed, while Yanbu loadings have been suspended. Argus reporting cited by Euronews indicates at least three European refiners have had late-September cargoes cancelled or delayed, in some cases until November. So, can Europe replace those barrels? The answer is yes, but at a price. The principal alternatives are North Sea crude, U.S. Gulf Coast barrels such as WTI Midland, Kazakhstan, Algeria, Guyana, Brazil and West Africa. The problem is that Asian refiners affected by the same Middle Eastern disruption are competing for many of those barrels. Europe therefore pays twice: higher crude differentials and higher freight costs. Saudi barrels shipped from Yanbu were conveniently positioned for European and Mediterranean refiners. Replacing them with crude from the Americas or West Africa reshuffles Atlantic Basin trade and increases transportation costs. In the meantime, Libya adds another layer of risk. Production at Hamada, Tahara and NC5 was temporarily halted after Petroleum Facilities Guard members closed the Hamada-Zawiya pipeline, prompting the NOC to warn of possible force majeure. Production has since returned to normal, but the episode highlights another vulnerability for Europe: Libya is one of its closest alternative crude suppliers at precisely the moment European refiners are searching for replacements for disrupted Saudi barrels. Consumers will not have to wait months to feel it. Wholesale diesel and gasoline prices respond immediately to tighter crude and refined-product markets. Much of the resulting increase can begin appearing at European filling stations within one to two weeks. By late September and October, the effect should become clearer as European refiners physically replace cancelled or delayed Saudi cargoes with more expensive Atlantic Basin barrels. By Tom Kool for Oilprice.com More Top Reads From Oilprice.com

The war in Iran that had to be over and won by the United States in about six weeks is now in its seventh month and the oil markets are starting to crack. Gone are most of the cushions the market had in the early weeks and months of the Middle East conflict. The oversupply from early this year has disappeared as oil on water was drawn down quickly when the Strait of Hormuz was closed to tanker traffic in March. Record stock releases led by the International Energy Agency (IEA) depleted strategic inventories in developed economies, including in the United States, where the Strategic Petroleum Reserve (SPR) now holds the lowest level of crude oil since the early 1980s. China, which strategically slashed its crude oil imports by about 4-5 million barrels per day (bpd) in May and June, has started to gradually ramp up purchases, removing a significant demand-side balancing mechanism that had prevented oil prices from spiking to record highs in the spring. With few buffers left to absorb the six-month-long disruption of oil flows at the Strait of Hormuz, the last thing the market needed was an escalation that put a key non-Hormuz flow valve at risk. New Supply Shock But here we are: the vital East-West oil pipeline in Saudi Arabia, which helped the Kingdom bypass the Strait of Hormuz and export most of its crude oil from the Yanbu port on the Red Sea, is now out of service – possibly for weeks – following drone attacks at the end of last week. Thanks to the East-West pipeline, for half a year Saudi Arabia has managed to re-route most of its crude loadings from the western ports in the Persian Gulf to the Red Sea port of Yanbu. However, the closure of the pipeline has now introduced a major risk to about 4 million barrels per day (bpd) of Saudi crude oil shipments from Yanbu. Saudi Arabia may be able to sustain exports for days by drawing from Yanbu's stocks, but a longer disruption to the pipeline operations could jeopardize the Red Sea flows, which are already under intense scrutiny by the Iran-aligned Houthis in Yemen, who are targeting Saudi shipments and even hit some tankers in July. While Saudi Arabia's customers in Asia are scrambling for updates, the oil market is pricing in another disruption to the Middle East's oil flows at a time when the buffers are all but gone, and the fuel markets and prices are flashing severe tightness across continents. Flat Cushions Chevron CEO Mike Wirth said on Friday that the market buffers have now been "played out" and oil prices could rise further over the coming months.

The East-West Pipeline in Saudi Arabia, which delivers oil to the shores of the Red Sea, has been an important workaround to the choking of tanker traffic by Iran in the Strait of Hormuz, the only exit for tankers from the Persian Gulf to the open sea. The Saudi government claims that 7 million barrels per day (mbpd) of crude oil can flow westward through the pipeline to the port of Yanbu, though the current exports are thought to be lower (perhaps 5 mbpd) than that given infrastructure restraints. But now that pipeline has been bombed and put out of service. The Saudis are saying that the pipeline has been closed "as a precautionary measure." But that statement seems to underplay what has happened. Satellite images show that the attacks damaged at least two pumping stations. Repairing or replacing these stations may be more involved than simply replacing a section of damaged pipeline since the pipeline sits mostly above ground. And, of course, once repaired, the pipeline could simply be attacked again. The 1200-kilometer length of the pipeline is not easily defended. The oil-starved importers of the world have been gushing about how much oil has been getting out of the Persian Gulf right under the noses of a threatening Iranian Revolutionary Guard Corps (IRGC) who are standing watch with missiles and drones on the shores of the Strait of Hormuz. But even these surreptitious transits have carried volumes far below those transported before the war began, only 7 mbpd versus 20 mbpd. The East-West Pipeline became a crucial source of oil to the world after the Iranians closed the Strait of Hormuz. Now a missile and drone attack has put to rest the idea that pipelines are, in fact, a genuine solution to the current and any future closure of the Strait of Hormuz. Given how obvious it is that pipelines are easy to attack with drones and missiles, it has been puzzling to read all the talk about building new pipelines in and around the Persian Gulf region to lessen dependence on the Strait of Hormuz. Only a simpleton would believe that these pipelines would somehow escape attack during a conflict in the region. The pipeline "solution" demonstrates perfectly 1) how one-dimensional much of the media coverage of the U.S.-Israeli war with Iran has been and 2) how one-dimensional the strategic thinking on the part of the United States has been. All any observer needs to do is look up in the sky and discover that there are second and third dimensions, making it possible for aerial weapons to come from far away to destroy any pipeline. It is difficult not to ridicule those who failed to make this simple observation before committing their typing fingers or their mouths to such a nonsense solution to the Strait of Hormuz closure as pipelines. By Kurt Cobb via Resource Insights More Top Reads From Oilprice.com