Multiple Gulf countries followed the U.S. Federal Reserve’s 25-basis-point interest rate hike; combined with current geopolitical risks, what chain reactions will this have on crude oil supply-demand dynamics and 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 announcement—Saudi Arabia’s repo rate rose to 4.5%. Kuwait did not follow suit, maintaining its rate at 3.5%—a decision that itself signals internal divergence among Gulf states: the Kuwaiti dinar is pegged to a currency basket rather than solely to the U.S. dollar, affording it greater policy flexibility. From a local perspective, the Gulf countries’ rate hikes are fundamentally driven by exchange-rate regime constraints—not proactive monetary tightening. Currencies such as the Saudi riyal and UAE dirham are pegged to the U.S. dollar; failure to match the Fed’s hike would widen interest-rate differentials, triggering capital outflows and downward pressure on domestic currencies. Thus, these moves are defensive—not responses to domestic economic overheating. Yet this round of rate hikes may represent one of the most geopolitically “crowded-out” impacts on oil prices 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, sufficiently large supply-side shocks can easily overwhelm marginal demand-side tightening. That is precisely the situation today. What’s truly pricing oil now is the Strait of Hormuz—and the Bab el-Mandeb Strait. The global crude market’s trading focus has decisively shifted away from inventory and demand dynamics toward geopolitical conflict-driven supply-risk pricing. This is not mere rhetoric—it reflects concrete 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 have surged sharply; many tankers voluntarily reroute, directly inflating shipping costs and extending delivery timelines. As a result, Gulf producers face a de facto “can pump, cannot ship” dilemma—export capacity is constrained not by falling demand, but by logistical bottlenecks, causing an involuntary contraction in 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—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 following drone attacks on September 10–11. Yanbu’s inventory can now sustain only five to seven days of exports. Subsequently, Saudi Aramco canceled or postponed some September deliveries to European refineries and pivoted to selling spot crude via ship-to-ship transfers outside the Strait of Hormuz—having already sold 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 Bab el-Mandeb. In early September, roughly 3 million barrels per day passed through the strait; “it is likely now zero.” With both critical chokepoints simultaneously under severe strain, the market’s prior hedging assumption—that pipeline capacity could substitute for strait transit—has been completely shattered. Low inventories magnify every shock Global crude oil buffer stocks are now extremely thin. According to U.S. EIA data, commercial crude inventories stood at 423.4 million barrels for the week ending September 11—just 1% above the five-year average—and declined for the third consecutive week, with the drawdown smaller than expected.

Europe cut off! Saudi crude redirected to Asia; tankers earn $8 million per day

Zero-Carbon Intelligence 【Europe Cut Off! Saudi Crude Redirected to Asia; Tankers Earn $8 Million Per Day】 After its key oil pipeline came under attack, Saudi Arabia did not halt oil sales—but instead switched to a riskier, far more expensive route to serve Asian buyers. According to a recent Bloomberg report, Saudi state-owned oil giant Saudi Aramco has informed at least two European refineries that all oil deliveries for next month have been canceled—unilaterally tearing up long-term supply contracts with Europe. European customers typically receive Saudi crude under long-term contracts to ensure stable monthly supplies. Prior to the shutdown, the pipeline transported 7 million barrels per day. Yet insiders confirm no such deliveries will occur next month—and this decision applies to all European buyers. Saudi Aramco has declined to comment. The resulting supply gap is forcing European buyers to seek costly alternative sources. According to Italian government announcements on September 19, Italy plans to deploy up to four naval vessels to the Bab el-Mandeb Strait to safeguard maritime passage. With the pipeline damaged and European deliveries suspended, Saudi Aramco has “switched routes”—turning to Asian nations to sell its flagship grades: Arab Light, Arab Medium, and Arab Heavy crude, exported via the Strait of Hormuz. Sources indicate Saudi Aramco has already sold approximately 60 million barrels of crude, scheduled for loading via ship-to-ship transfers at Sohar Port in Oman this month and next. Chinese and South Korean refiners are the primary buyers of this spot supply, while additional volumes will head to India and Japan. Satellite data shows Saudi Arabia’s average daily oil export volume via the Strait of Hormuz over the past six days reached 2.9 million barrels—far exceeding August’s average of just 700,000 barrels per day. Ship-to-ship crude transfers in the Gulf of Oman are a critical mechanism enabling Saudi Arabia to maintain exports: smaller vessels transport crude through the Strait of Hormuz, then transfer cargo to large tankers anchored outside the strait—thereby avoiding the risk of attacks on large tankers entering the Persian Gulf. According to CNBC’s reporting citing vessel-tracking data, such transfer volumes have surged from 1.5 million barrels per day in August to 2.7 million barrels per day currently.

Saudi Aramco offers extra spot crude cargoes to Europe, sources say

Oct 15, 2026

Saudi Aramco has offered additional spot crude oil cargoes for delivery to Europe in late October and mid-November, per trade sources. The state-owned company's spokesperson did not immediately comment on the offer.

reuters

2025-10-14

Saudi Aramco to Boost Gas, Chemicals; Primed to Handle 'Shocks' — CEO

2026-03-10

Saudi Aramco Q4 net income falls on higher operating costs, lower revenue

2026-04-28

Poland's Orlen says Aramco oil supplies on schedule, in line with contracted volumes

2026-04-28

Aramco Suspends LPG Deliveries Through May on Facility Damage

2026-05-08

Aramco, Adnoc Transport Oil Through Hormuz Despite Iran Threats