Riyadh: The world could be plunged into a further oil crisis unless Saudi Arabia resumes operations on its major pipeline to the Red Sea within days.
With the conflict between Saudi Arabia and the Iran-backed Houthis continuing, oil buyers and traders believe that Riyadh will run out of oil stocks for exports soon.
A failure by the kingdom to resume the pipeline could result in a loss of up to 4% of global oil supply, Reuters reported on Monday.
This reduction in Saudi oil flows could intensify the global supply shortage, which has already driven fuel prices to record levels, fuelled inflation worldwide and pushed US bond yields to their highest point since the 2008 financial crisis.
According to the report, crude inventories at the Red Sea port of Yanbu are enough to sustain exports for roughly five to seven days. If the pipeline remains shut further, those reserves could eventually be depleted.
Saudi Arabia was forced to shut its massive East-West oil pipeline on September 11 after the Houthi rebels escalated drone attacks on the kingdom.
While Riyadh did not reveal full details about the extent of the damage or how long the route would remain offline, sources told Reuters that repairs could take at least five to six weeks. The pipeline could be fixed sooner and that partial pumping could resume as repair work continues, another source noted.
The desert-crossing pipeline across the Arabian Peninsula has largely helped shield Saudi Arabia from the worst effects of the wartime closure of the Strait of Hormuz, which has severely disrupted exports from neighbouring countries.
The kingdom, the world’s biggest oil exporter, has used the East-West pipeline to reroute roughly four million barrels per day (bpd), or around 4% of global supply, to the Red Sea port of Yanbu. However, with the pipeline out of service, the port has stocks for only five to seven days.
It has, however, been learnt that Saudi Arabia also has enough crude stored at Egypt’s Ain Sukhna port on the Red Sea and Sidi Kerir port on the Mediterranean to continue supplying customers for several days.
Saudi Arabia’s crude storage capacity at Yanbu port is currently around 35 million barrels, while Ain Sukhna has 18 million barrels and Sidi Kerir has 20 million barrels, as per industry estimates. These stocks are not at full capacity and will eventually run out unless the crucial pipeline resuming operations, it has been reported.
Riyadh’s oil output declined to its lowest level in more than three decades in August, as reduced flows through the Strait of Hormuz and the Red Sea weighed on supplies, the International Energy Agency (IEA) said on September 11.
The agency, which is responsible for coordinating energy policies among Western countries, expects global oil supply to decline by 5.7 million barrels per day or roughly 6% this year, as reported by Mint.
On September 11, the Yemen-based Houthi rebels, who have threatened Saudi oil shipments, seized an island at the entrance to the Red Sea, adding to concerns over regional supply disruptions.
Saudi Arabia informed the Organization of the Petroleum Exporting Countries (OPEC) last week that its oil production had fallen to 6.2 million bpd in August, down from 10.9 million bpd in February, before the US and Israel launched a joint operation against Iran.
Should Saudi Arabia fail to resume exports soon due to the pipeline’s prolonged shutdown, the move could further strain global oil supplies, leaving markets vulnerable to additional price pressures.