Saudi Pipeline Bypassing Hormuz Restarts, Easing Oil Prices

Saudi Arabia has completed repairs on its East-West pipeline, which had been shut down by a drone attack. The pipeline, which has served as a bypass route around the Strait of Hormuz since the U.S.-Iran war, is running again, raising the question of whether crude prices that have climbed above $100 a barrel will stabilize.

The Wall Street Journal reported on the 28th that Saudi Aramco, the kingdom's state oil company, resumed loading crude shipped through the East-West pipeline at the Red Sea port of Yanbu starting the previous day.

The 1,200-kilometer East-West pipeline, which runs from Saudi Arabia's eastern oil fields to Yanbu on the Red Sea, emerged as a critical route for moving Saudi crude after the war with Iran closed the Strait of Hormuz. Operations were abruptly halted on the 10th of this month by a drone attack believed to have been carried out by Iran-backed forces in Iraq. The shutdown cut off about 4 million barrels a day of crude exports through the pipeline, equivalent to roughly 4% of global supply.

The Journal noted that the restart deals a blow to Iran, which has sought to use control of the Strait of Hormuz as leverage over oil prices. Resuming crude exports through Yanbu helps rein in international prices.

Brent crude, which had spiked to as high as $108 during trading on the 28th, gave back part of those gains after news of the pipeline restart and settled at $105.28 that day.

Saudi Arabia is also pursuing ways to increase crude shipments through the Strait of Hormuz. Tankers switch off their identification transponders to slip through the strait undetected, then transfer crude ship-to-ship in relatively safer waters.

According to shipping data provider Kpler, crude loadings at Saudi Arabia's Ras Tanura surged to 6.5 million barrels a day recently from 1.5 million barrels a day in early September. Market participants say that if exports expand to a degree through both the Hormuz and Red Sea routes, it could put downward pressure on prices.

Still, Yemen's pro-Iran Houthi rebels may continue to threaten energy infrastructure in Saudi Arabia and other Gulf states, a risk that could push prices higher. Hamad Hussain, senior economist at Capital Economics, said exporting crude from Yanbu will be harder than before given the threat the Houthis pose to energy infrastructure.