Attack on Saudi pipeline pushes up oil price

Oil prices rose by more than 2% on Monday. Two regional officials said a strategic Saudi Arabian pipeline, hit in an attack last week, will remain largely out of service for several weeks, with consequences that will be felt internationally.

Saudi Arabia relies heavily on the roughly 1,200-kilometre East-West Pipeline to move crude from Gulf terminals to the port of Yanbu on the Red Sea, avoiding routes through the Persian Gulf. The pipeline was halted after an attack on Thursday that Riyadh attributed to drones launched by Iran-backed Iraqi militias. According to the two officials, repairs will take three to five weeks and also affect a major pumping station, meaning the pipeline could operate only partially during the work.

The pipeline's numbers and the Houthi advance

Before the attack, the pipeline carried about 4 million barrels a day, around 4% of global supply, out of a maximum capacity of 7 million barrels a day. Saudi Aramco, which operates the infrastructure, did not comment.

Meanwhile, Iran-backed Houthi rebels from Yemen have expanded their control over Red Sea shipping routes by capturing the islands of Greater Hanish and Lesser Hanish, about 160 kilometres north of the Bab el-Mandeb strait, bringing them to roughly 32 kilometres from the US military base in Djibouti. In the preceding days they had already seized the port city of Mokha and Mayun island, within the same strait, one of the main chokepoints of global maritime trade toward Asian markets. Yemeni government forces backed by Riyadh are attempting a counteroffensive, with air raids on Houthi positions in Mokha, Dhubab and Taiz province.

Massimo Nicolazzi, a professor of energy economics interviewed on RSI's Telegiornale, said Europe must prepare for a possible prolonging of tensions along oil routes. "Prepariamoci a bollette pesanti per questo inverno" ("Let's prepare for heavy bills this winter"), he warns. A mild winter, he explains, could reduce pressure on energy demand and ease the impact on prices.

According to the expert, in a situation of scarcity even the loss of a limited share of supply can have major effects. In this case, he says, it is not a marginal quantity: the pipeline could carry "fino a 5 milioni di barili al giorno" ("up to 5 million barrels a day"), about half of Saudi exports before the blockage.

The oil market is global, Nicolazzi notes: crude transported by sea has no fixed destination and can be redirected to any buyer willing to pay for it. "Togliamoci dalla testa che ci siano destinazioni regionali" ("Let's stop thinking there are regional destinations"), he says, since only pipelines physically link a producer to a specific outlet. If Asia had greater difficulty sourcing supply from the Gulf, its demand would also spill over into the markets where Europe buys, increasing competition.

"Il 90% di quello che passava da Hormuz andava in Asia" ("90% of what passed through Hormuz went to Asia"), Nicolazzi points out. If those flows shrink, Asian buyers will come to European markets to compete for the same purchases. Asked whether Europe has real alternatives, the answer is no: this does not necessarily mean running out of energy, but it does mean paying more for it.

The expert's advice is to cut waste, optimise consumption and hope for favourable weather, because in the short term there are no shortcuts to quickly replace the volumes at risk of going missing.