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

The central banks of Saudi Arabia, the UAE, Qatar, Bahrain, and Oman raised their benchmark interest rates by 25 basis points within hours of the U.S. Federal Reserve’s rate hike announcement—Saudi Arabia’s repo rate rose to 4.5%. Kuwait did not follow suit, maintaining its rate unchanged at 3.5%—a move that itself signals that Gulf states are not monolithic: the Kuwaiti dinar is pegged to a currency basket 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 driven less by proactive monetary tightening and more by exchange-rate regime constraints. Currencies such as the Saudi riyal and UAE dirham are pegged to the U.S. dollar; if these countries had not raised rates in tandem, widening interest-rate differentials would have triggered capital outflows and downward pressure on their currencies. Thus, this was a defensive measure—not an active tightening prompted by domestic economic overheating. Yet the impact of this round of rate hikes on oil prices may be the most geographically 'overwhelmed' 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 dampen demand and tighten financial conditions, when supply-side shocks are sufficiently large, marginal demand-side tightening becomes negligible. That is precisely the situation today. What truly drives pricing now is the Strait of Hormuz and the Bab el-Mandeb Strait. The global crude oil market’s pricing focus has decisively shifted away from inventory-demand dynamics toward geopolitical conflict-driven supply-risk pricing. This is not mere rhetoric—it reflects tangible transmission channels. The Strait of Hormuz handles nearly 20% of globally seaborne crude oil. Its transit efficiency has yet to recover to pre-conflict levels. Marine insurance premiums for tankers have surged sharply, prompting many vessels to reroute—directly inflating shipping costs and extending delivery timelines. As a result, Gulf producers face a situation where crude can be extracted but not shipped out, leading to a de facto contraction in export supply—not due to falling demand, but due to logistical bottlenecks constraining supply. Even more serious is the damage to Saudi Arabia’s East–West Pipeline. Stretching approximately 1,200 kilometers, this pipeline is 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. With a daily throughput of roughly 4 million barrels—about 4% of global supply—the pipeline was shut down preventively after drone attacks on September 10–11. Yanbu’s inventory can now support only five to seven days of exports. Subsequently, Saudi Aramco canceled or postponed some September deliveries to European refiners and turned instead to ship-to-ship transfers in waters off the Strait of Hormuz to sell spot crude—selling up to 20 million barrels 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 strait. In early September, roughly 3 million barrels of oil passed through the Bab el-Mandeb daily; 'it is likely now 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 has warned European refiners that crude oil supplies may remain disrupted next month, adding further risk to Europe’s 'winter energy crisis'.

Saudi Arabia’s tightening of crude oil supplies to European refiners has added fresh turbulence to an already strained global energy market. With damage to the East–West Pipeline and disruptions to shipping through the Strait of Hormuz, Europe’s crude import channels have further contracted, intensifying supply pressures ahead of winter. According to Bloomberg, Saudi Aramco has notified at least two European refiners that they will receive no crude deliveries next month—a decision reportedly extended to all European buyers. Following the news, international oil prices surged rapidly: WTI rose $0.69 per barrel to $96.16 within five minutes. At press time, WTI had reversed earlier losses—having previously fallen over 2%—and was up 0.3% at $97.51 per barrel. For Europe, the Saudi supply disruption means refiners must seek alternative crude sources on the global market. Amid already tight diesel and natural gas supplies, this could further elevate raw-material procurement costs. OECD member states in Europe imported an average of 577,000 barrels per day of Saudi crude in June this year. If this supply gap persists, it will heighten the difficulty of replenishing inventories and securing supply contracts ahead of winter. East–West Pipeline damage impedes Saudi supply to Europe Earlier this month, Saudi Arabia’s East–West Pipeline was forced offline following drone attacks. Connecting eastern oil-producing regions to Red Sea export terminals, the pipeline has a daily capacity of up to 7 million barrels and serves as a vital alternative route for Saudi crude exports to Europe—bypassing the Strait of Hormuz. Earlier this week, markets had anticipated the pipeline might restore about half its capacity within days—but that expectation had largely evaporated by weekend.

Aramco Halts October Crude Deliveries to European Refiners After Pipeline Attack

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Saudi Aramco cancelled October crude shipments to European refiners following drone attacks on its East-West pipeline. The company aims to restore full capacity within six weeks while boosting Gulf exports to offset losses.

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