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By Brendan Cole
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A key Saudi oil pipeline will remain largely out of service for weeks after being damaged in a drone attack, the Associated Press reported late Monday.
Repairs to the pipeline, including damage at a major pumping facility, could take three to five weeks, according to two regional officials who spoke to the AP.
The pipeline may continue operating partially during the repairs, although it is unclear how much oil could flow through it. The officials spoke on condition of anonymity because they were not authorized to brief the media.
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Earlier estimates suggested repairs could take up to six weeks, potentially putting around 4 percent of the global oil supply at risk, according to energy industry sources cited by Reuters.
The news comes as Yemen's Houthi rebels seized more islands along Red Sea shipping routes, adding to concerns about Saudi Arabia's oil exports.
Oil prices were already trading around 3 percent higher on Monday, on top of gains last week, as traders feared the shutdown could further tighten global crude supplies if it lasts more than a few days.
Why Was The Pipeline Shut Down?
The kingdom announced on Friday it had shut its East-West oil pipeline as a precaution following strikes from Iraq, likely by Iranian-backed militant groups. Riyadh did not reveal the extent of the damage or how long it will stay offline.
The pipeline across the Arabian Peninsula has allowed Saudi Arabia to reroute 4 million barrels of oil per day to its port of Yanbu on the Red Sea, following the shutdown of the Strait of Hormuz due to the war in Iran.
With the pipeline out of service, Yanbu can only maintain exports for just five to seven days, according to industry sources, cited by Reuters. Newsweek has contacted the Saudi government for comment.
“Oil is priced globally, so a disruption overseas reaches American families at the pump," Dan Varroney, economic growth strategist, told Newsweek on Monday, "how long it lasts determines how much more damage it does."
Roukaya Ibrahim, chief strategist, commodities, at economic advisory firm BCA Research, told Newsweek, “the pipeline’s closure will likely increase the magnitude of the supply disruption, inject greater volatility into crude oil markets, and will have knock-on effects on refined product markets, which are already extremely tight.”
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Saudi Arabia shut down the pipeline after it was hit in an air attack, officials said Friday, confirming reports of fire and smoke along the key energy route.
The Saudi Ministry of Energy said the closure was "precautionary" and its Foreign Ministry said several drones involved in the attack came from Iraq and gave Baghdad "an opportunity to take the necessary measures." The Iraqi government condemned the assault and ordered an investigation.
Sentinel-3 satellite imagery showed a black smoke plume over the pipeline route across the desert between Medina and Mahd adh-Dhahab. NASA’s FIRMS system also showed clustered thermal anomalies in the area.
How Shutting Down The Pipeline Will Affect Gas Prices
Oil prices jumped earlier last week to their highest levels since May because of the ongoing war with Iran, with the price for a barrel of Brent crude, the international standard, at $104.44 on Friday.
A decline in flows from the kingdom will raise fears about a global supply crunch which could have a further knock-on effect in the U.S., where Americans are paying an average of $6 a gallon at the pump, a key cost-of-living issue for the Trump administration ahead of the mid-term elections in November.
“The concern is that available stocks at the export terminals could run low before pipeline deliveries resume,” said Varroney, author of Rethinking Economic Growth.
“The closure adds uncertainty and upward pressure on prices, but the duration matters. A quick repair would limit the damage. A prolonged interruption would put greater pressure on fuel prices and household budgets,” he added. “It is too early to attach a reliable cents-per-gallon estimate to this outage alone.”
"Ahead of the midterms, gasoline prices are a highly visible reminder of the cost of living,” he said. “Families judge affordability by what remains in their checking account after paying the bills. Another increase at the pump leaves them with less, regardless of what the broader economic headlines say.”
Saudi Arabia can also supply customers for several days from Egypt’s ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean, Reuters reported, citing another source. Yanbu’s storage capacity is around 35 million barrels, according to industry estimates, with the Egyptian ports able to store 18 million and 20 million barrels respectively.
But stocks are not full and will run out without the East-West pipeline resuming operations soon, according to Reuters sources. Saudi oil supply dropped to a three-decade low in August due to reduced flows via Hormuz and the Red Sea, the International Energy Agency (IEA) said last week.
Given that Saudi crude exports via Yanbu declined by about half in August, the potential marginal impact of the East-West pipeline’s closure on global crude supplies is roughly 2.5 million barrels per day, said Ibrahim from BCA Research.
“Tank supplies at Yanbu could provide a buffer. However, since they currently cover only five to seven days of exports and repairs are expected to take up to six weeks, this buffer is temporary,” Ibrahim said.
Saudi Arabia could take advantage of any improvement to shipping conditions in the Strait of Hormuz over the coming weeks to divert supplies to the Strait and offset the loss of Yanbu exports."
“However, the postponement of the meeting between Iran’s foreign minister and GCC (Gulf Cooperation Council) foreign ministers originally scheduled to take place today injects uncertainty into Saudi Arabia’s ability to ramp up Hormuz flows over the near term," Ibrahim added.
Contact Newsweek editors on this story: Daniel Orton, Trevor Davies, Alex Backus, Gray R. Thomas.
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