The armed attack in Yemen damaged Saudi Arabia’s East-West Pipeline; what impact does this have on Saudi energy security and the broader Middle East situation?

Winter is coming. Saudi Arabia has notified its European customers that it has canceled all orders scheduled for late September. Of course, whether deliveries can resume afterward remains uncertain (according to Saudi sources, no shipments are expected at least until the end of November). Europe’s inflation rate and government bond yields are truly on the verge of exploding.

Multiple Gulf countries followed the U.S. Federal Reserve in raising interest rates by 25 basis points; given current geopolitical risks, what chain reactions might this have on crude oil supply-demand dynamics and oil price expectations?

The central banks of Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Oman raised their benchmark interest rates by 25 basis points within hours of the Federal Reserve’s rate hike announcement; Saudi Arabia’s repo rate rose to 4.5%. Kuwait did not follow suit, keeping its rate unchanged at 3.5%—this itself indicates that Gulf states are not a monolithic bloc. The Kuwaiti dinar is pegged to a basket of currencies rather than solely to the U.S. dollar, affording it greater policy flexibility than other Gulf nations. From a local perspective, the Gulf countries’ rate hikes are fundamentally driven by their exchange-rate regimes—not by proactive monetary tightening. Currencies such as the Saudi riyal and UAE dirham are pegged to the U.S. dollar; without matching the Fed’s hike, widening interest-rate differentials would trigger capital outflows and downward pressure on their currencies. Thus, these moves are defensive, not deliberate tightening amid overheating economies. Yet the impact of this round of rate hikes on oil prices may be the most thoroughly “eclipsed” by geopolitical factors in recent years. Historically, Fed hiking cycles do not necessarily weigh on oil prices: during the 1999–2000 cycle, WTI surged from $18 to nearly $36 per barrel. The reason is straightforward: while rate hikes suppress demand and tighten financial conditions, when supply-side shocks are sufficiently large, even marginal demand-side tightening becomes negligible. That is precisely the situation today. The real pricing drivers are now the Strait of Hormuz and the Bab el-Mandeb Strait. The global crude oil market’s focal point has decisively shifted—from inventory and demand dynamics to geopolitical conflict-driven supply-risk pricing. This is not mere rhetoric; there exists a concrete, tangible transmission chain. The Strait of Hormuz handles nearly 20% of globally seaborne crude oil. Its transit efficiency has remained persistently below pre-conflict levels. Marine insurance premiums for tankers have surged sharply, prompting many vessels to voluntarily reroute—directly inflating shipping costs and extending delivery timelines. As a result, Gulf oil producers face a situation where crude can be extracted but not exported, leading to an involuntary contraction in export supply—not due to falling demand, but due to logistical bottlenecks constraining supply. Even more serious is the Saudi East-West Pipeline. Stretching approximately 1,200 kilometers, this pipeline serves as a critical alternative route enabling Saudi Arabia to bypass the Strait of Hormuz by transporting crude from eastern oilfields to the Red Sea port of Yanbu. It carries roughly 4 million barrels per day—about 4% of global supply. Following drone attacks on September 10–11, the pipeline was shut down preventively. Yanbu’s inventory can now sustain exports for only five to seven days. Subsequently, Saudi Aramco canceled or postponed some September deliveries to European refineries and shifted toward selling spot crude via ship-to-ship transfers outside the Strait of Hormuz; up to 20 million barrels have already been sold this week. Compounding the crisis is the Bab el-Mandeb Strait. Yemen’s Houthi forces have recently seized strategic locations along the Red Sea coast—including the port of Mocha and Perim Island—posing a direct threat to the Bab el-Mandeb. In early September, roughly 3 million barrels of oil passed through the strait daily; “that figure is now likely zero.” With both critical chokepoints simultaneously under severe strain, the market’s prior expectation—that the pipeline could serve as a reliable hedge against Strait-of-Hormuz disruptions—has been completely shattered. Low inventories magnify every shock. Global crude oil buffer capacity is now extremely limited. According to U.S. EIA data, commercial crude oil inventories stood at 423.4 million barrels for the week ending September 11—just 1% above the five-year average—and have declined for three consecutive weeks, with the latest drawdown smaller than expected.

Saudi Arabia Tells European Refiners No Crude Supply Next Month

3 days ago

Saudi Aramco suspended crude oil allocations to European refiners next month following an attack on its East-West pipeline. The disruption triggered panic buying, though the line is expected to fully restart within six weeks.

bloomberg

2026-01-19

Saudi Arabia Significantly Cuts February Crude Oil Prices

2026-05-05

Saudi Arabia Cuts Oil Prices for June From Record-High Premium

2026-05-05

Saudi Arabia Cuts Arab Light June OSP for Asia

2026-06-07

Saudis Cut July Oil Prices to Asia, Though Still at Decades High

2026-06-07

Saudi Arabia Sharply Cuts July OSP for Asia on Slow Demand