$150 for an oil barrel, the new extreme scenario following closure of key Saudi pipeline
After Houthi rebels damaged the route serving as an alternative to the Strait of Hormuz, experts expect prices to keep rising
Saudi Arabia, the world’s largest oil exporter, is running out of alternatives to export its production, a fact that will raise oil prices even more after months of intense price escalation. The blockade of the Strait of Hormuz due to the war in Iran delivered the first blow, and now, more than six months after the war began, the East-West Pipeline connecting Saudi oil fields with its Red Sea ports — the best alternative route — is under threat following attacks by Yemen’s Houthis, who are allies of Iran.
This critical infrastructure, which was operating at top capacity and transporting seven million barrels of crude a day, has been closed for an indefinite amount of time to repair the damages caused by the attacks. This adds to the supply shortage from the Persian Gulf even as the Middle East conflict escalates to a new level, making $150 a barrel the next potential frontier for oil prices.
Brent prices hovered around $110 on Friday of last week on the back of the latest news from the Middle East, and this Tuesday they were at $108. Houthi rebels in Yemen have taken control of the coast on the Strait of Bab-el-Mandeb after taking the port of Mocha and the island of Mayun, key locations to access the Red Sea from the south. Their offensive has also shut down the East-West Pipeline, which had so far prevented an even bigger global oil crisis.
A $120-a-barrel scenario has become a plausible situation for many analysts, who are closely following repair work to the damaged pipeline. According to the Associated Press, it could be several weeks before the infrastructure is operational once again.
“There could be a spike in crude prices to $120-130 a barrel now that damage to the East-West Pipeline has been confirmed,” said Martha Tallas, director of consulting and analysis at the British raw materials and energy firm Argus. “The market seems to be realizing now that pipelines are also vulnerable, and so, even if the East-West Pipeline is repaired, there will likely still be an added layer of pricing on crude to cover the geopolitical risk.”
But $150 is the last frontier. Jorge León, head of analysis at the energy consultancy Rystad, says this number is a limit after which prices could no longer keep rising, as demand would be destroyed.
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