Due to the conflict between the US and Iran, which led to the closure of the Strait of Hormuz—the main route supplying 20% of global oil demand—serious problems have arisen with global fuel supplies. Furthermore, the Houthis are intensifying attacks in the Bab el-Mandeb area, and Saudi Arabia's East-West pipeline was halted due to drone attacks, closing the country's main bypass route.
The closure of these three critical oil passages sends a negative signal to the world market, as it could further disrupt already difficult oil and gas supplies.
Following events in the Strait of Hormuz and Bab el-Mandeb, it has been reported that Saudi Arabia's primary bypass route via the East-West pipeline was stopped due to drone attacks. According to a Reuters report, this puts the world's largest oil exporter on the verge of depleting its reserves, which is expected within five to seven days. This report suggests that this crisis could potentially disrupt global oil supplies by 4%.
This key Saudi Arabian pipeline spans about 1200 kilometers and was forced to stop operations in an emergency situation. It used to deliver approximately 4 million barrels of oil daily to the Yanbu port on the Arabian Peninsula. This represents a significant shock to global energy markets, which are already facing issues due to disruptions in Hormuz and the closure of Bab el-Mandeb amid the Middle East conflict.
According to fresh data presented by OPEC from the UK on September 11, there is a significant monthly decrease in oil production—approximately 1.9 million barrels per day. In July, the figure stood at 8.1 million barrels per day. This sudden drop in production completely negated the short-term growth recorded in June, when production reached 7.1 million barrels per day.
Oil production in Saudi Arabia has reached its lowest level since 1990, which is an alarming sign exacerbating global tension. In August, crude oil production in Saudi Arabia fell to 6.24 million barrels per day, the lowest figure since 1990. The main reason for this is the war between the US and Iran, which leads to the systematic blocking of vital energy sources in the region.
Under these crisis conditions, export oil reserves near Yanbu amount to only five to seven days of the assumed capacity of 35 million barrels. Additionally, buffer stocks from Saudi Arabia's additional reserves in the ports of En-Sokhna and Sidi Kerir in Egypt are calculated for only a few extra days. Moreover, information regarding the full extent of losses from Riyadh has not yet been disclosed, maintaining an atmosphere of uncertainty in energy markets.
The consequences of disruptions across all three routes are already being felt in the international market, where crude oil prices continue to rise. On Monday, Brent Crude traded around $109 per barrel, WTI Crude around $103 per barrel, and Murban Crude around $120 per barrel. A rise in natural gas prices by approximately 2% was also noted.
The sharp increase in crude oil prices is linked to the sudden closure of Saudi Arabia's alternative route following problems in Hormuz and Bab el-Mandeb, driving the cost of global fuel to record highs and contributing to rising global inflation. It should be noted that US Treasury bond yields have reached an unprecedented level since the 2008 financial crisis. The International Energy Agency forecasts a possible reduction in global oil supplies by 5.7 million barrels per day this year. This could weaken major economies, especially oil-importing countries such as India, Pakistan, and Bangladesh, against the backdrop of acute strategic reserve shortages.