Why the global oil market hinges on Saudi Arabia’s East-West pipeline

GLOBAL oil supply has been squeezed for months as the impasse over reopening the Strait of Hormuz continues. Now, the market is grappling with another setback: the closure of Saudi Arabia’s East-West pipeline.

The conduit has been a key relief valve for the world’s biggest crude exporter, allowing it to bypass the blockage at Hormuz and keep its oil shipments flowing from the Red Sea instead.

But the kingdom shut the pipeline in mid-September after it was damaged by drones launched from Iraq, where Iran-backed militias operate. This has added to the threats to Saudi Arabia’s energy assets and Red Sea exports as Yemen’s Houthi rebels step up their attacks.

The interruption to flows through the East-West pipeline jolted a market that was already clamouring for supply. Oil prices have since pared some of their gains, although they remain around US$100 a barrel amid the possibility that some volumes may return in the near term.

State-run Saudi Aramco is seeking to restore the pipeline to about half capacity within days and reach full capability in about six weeks, according to a person familiar with the matter. 

What role does the East-West pipeline play in Saudi Arabia’s oil industry?

The 1,200 km pipeline runs across the Arabian Peninsula, connecting Saudi Arabia’s massive oil fields in the east of the country with the port of Yanbu on the Red Sea. 

It starts close to sea level at Abqaiq, home to the world’s largest crude processing plant, which treats oil produced from fields including the nearby supergiant Ghawar. The pipeline then traverses deserts to more than 1,000 m elevations as it crosses the Hijaz mountains before reaching the western coast.

Around two million barrels a day of crude carried by the pipeline are used domestically, mostly by refineries along the Red Sea. 

How important is the pipeline for the global oil market?

The East-West pipeline was built in the 1980s during the Iran-Iraq war amid fears that navigation through the Persian Gulf would be threatened.

That contingency planning paid off as the pipeline offered Saudi Arabia protection against the Hormuz disruption this year and allowed it to capitalise on higher crude prices. 

It also served as a lifeline for the global oil market. While shipments from the Ras Tanura terminal in the Persian Gulf – which handled about 90 per cent of the kingdom’s pre-war crude exports – were paused, Saudi Arabia dispatched more cargoes from its west coast.

Before the war broke out in late February, just 2.8 million barrels a day of crude were being moved through the East-West pipeline, well short of its seven million barrel a day capacity. But after tanker traffic through Hormuz came to a standstill, Aramco quickly increased flows to the pipeline’s maximum level.

As some of the volumes were sent to domestic consumers, shipments from Yanbu weren’t able to fully match Saudi Arabia’s roughly seven million barrels a day of pre-war exports.

They did, however, reach as high as 4.7 million barrels a day in June, equivalent to 5 per cent of global supply. Saudi shipments out of Yanbu were crucial to limiting the scale of the oil price surge and helped to shield economies from an inflation spike.

How is Saudi Arabia adjusting to its pipeline being offline?

In the absence of pipeline flows, crude can still be loaded onto vessels at Yanbu by using oil stored at the port.

However, these inventories are near historically low levels and Saudi Arabia is unlikely to completely empty these tanks, according to Nicholas Dyer, an oil analyst at Energy Aspects.

That could squeeze exports from Yanbu. Aramco has already delayed some deliveries to European buyers from its Red Sea port.

Dyer added that a crunch at Yanbu could have a knock-on effect of more delays and cancellations at Sidi Kerir, an Egyptian port that Saudi Arabia shuttles its crude to via the Suez Canal for customers to collect.

Other Persian Gulf oil producers, including the United Arab Emirates, Iraq and Kuwait, have relied heavily on covert tanker crossings through the Strait of Hormuz to export their crude.

Saudi Arabia didn’t lean on this option as much as it was able to send flows through the East-West pipeline. But that may now change.

The kingdom is seeking to boost its exports through Hormuz, according to a person familiar with the matter. It is not immediately clear how quickly it can do so to offset the East-West pipeline disruption, or how much it can ramp up these shipments to avoid the loss of tens of billions of dollars of export revenue.

How vulnerable is the pipeline to attacks?

The length of the East-West pipeline means it is difficult to ensure the security of the entire conduit.

“The deployment of counter-drone systems across 1,200 km of Saudi territory to defend the pipeline would be a very resource-intensive process,” wrote analysts at the Institute for the Study of War.

Almost all of the pipeline is buried at a depth of about a metre, affording some protection from aerial attack. The most vulnerable sections are at the 11 pumping stations, where the line comes above the surface and valves control the flow of oil through or around the pumps.

Satellite images published by Vantor showed damage to a pumping station south of Medina following the recent attack, although Saudi Arabia has not confirmed what was impacted by the drone strikes.

While damage to just one point along the network can disrupt the entire system, the kingdom has demonstrated that it can rapidly restore flows.

Valves along the pipeline can isolate individual sections, allowing for localised repairs. Damaged pump stations can also be bypassed, although this can result in some loss of overall pumping capacity.

Aramco is working to circumvent a section that was damaged in September to allow it to resume part of the pipeline’s capacity, according to a person familiar with the matter.

This is not. the first time that the East-West pipeline has been targeted. Saudi Arabia said in April that a pumping station was hit as part of a wave of attacks on the country’s oil production, refining and petrochemical facilities. This initially reduced flows by around 700,000 barrels a day but full pumping capacity was restored within days.

In 2019, the Iran-backed Houthi rebels targeted the conduit with drones. The strike damaged some pumping stations and temporarily shut the line.

Are Saudi Arabia’s broader oil infrastructure and exports at risk?

The kingdom’s energy infrastructure was targeted in the early months of the war as Iran and its proxies retaliated against US and Israeli strikes. This included Saudi Arabia’s largest refinery, Ras Tanura – a key supplier of transport fuels such as diesel to Europe – which was forced to temporarily close.

More recently, the Saudis have been under pressure from two fronts: the Houthi rebels and Iraqi militias. The latter, which operate under the umbrella of the Popular Mobilization Forces, have fired drones at the kingdom’s oil facilities.

It is unclear who was responsible for the September attack on the East-West pipeline. The Houthis are able to conduct strikes on Saudi Arabia from Iraq as the Iraqi militias allow the Houthis to operate in the areas they control.

The Houthis said in July that they would blockade Saudi ports in response to a siege on Yemen’s capital Sanaa, which the militants seized control of in 2014.

Since making that threat, they have struck ships and advanced along Yemen’s Red Sea coast, strengthening their positions near the Bab el-Mandeb strait and their ability to target vessels passing through the key waterway.

The risk of tanker attacks pushed Saudi Arabia’s oil exports to the lowest level in at least nine years in August; its crude production slumped, too. The Houthis have claimed responsibility for attacks that halted operations at Saudi energy facilities in the south-west of the country, although these assets largely supply domestic demand rather than international buyers.

Even once the East-West pipeline is restarted, exports from Yanbu might not fully bounce back if passage through Bab el-Mandeb is restricted by the Houthis. More shipments may be redirected north via the Suez Canal – a costlier and more time-consuming option for buyers in Asia.

How is Saudi Arabia responding to these threats?

The kingdom previously carried out joint strikes with the US on Iran-backed militias in Iraq after accusing them of targeting its oil infrastructure.

Following the attack on the East-West pipeline, Saudi Arabia said it would refrain from retaliating “at this stage” following a request from the Iraqi prime minister.

The Houthis’ advances leave Saudi Arabia with a stark choice: Escalate a military campaign that for years has failed to defeat the militants, or tolerate greater Houthi leverage over the Red Sea route that has become increasingly important for oil exports.

Crown Prince Mohammed bin Salman has appealed for military assistance to help fight the Houthis, including from US President Donald Trump and UK Prime Minister Andy Burnham. Neither has said that they are willing to directly intervene. BLOOMBERG