Global energy markets are confronting their most severe supply squeeze in decades as two major shocks converge: a drone strike that forced the closure of Saudi Arabia's east-west pipeline and the indefinite postponement of diplomatic talks between Tehran and Gulf nations.
Bernstein analysts have issued a stark warning that Brent crude could climb further to between $120 and $150 per barrel. Brent futures jumped as much as 3.7% overnight, touching above $108 before easing back to $107.70, while WTI futures traded near $103. Reports indicate the regional meeting originally scheduled for the 14th in Salalah, Oman, has been pushed back. Oman's Foreign Minister Badr Albusaidi noted on social media Sunday evening that the decision to postpone was made "to seek consensus," while reaffirming all parties' commitment to advancing regional dialogue and cooperation.
Long-term supply deficit takes shape
Bernstein analysts Neil Beveridge and Brian Ho characterized the current market as facing a "chronic supply shortfall" in their latest report, noting that their previous forecast of $90 per barrel for Brent in 2026 has been "overtaken by events." Meanwhile, US Energy Secretary Chris Wright poured cold water on market expectations during a Vienna appearance, stating that "counting on a mutually agreed deal with Iran at this point is clearly not a wise approach," and cautioning traders against anticipating any diplomatic breakthrough on the Strait of Hormuz.
4% of global supply hanging in the balance
Saudi Arabia's east-west pipeline sustained drone damage last Thursday and was subsequently shut down by Riyadh. The artery, with a daily capacity of up to 7 million barrels, has served as the critical alternative route for Saudi oil exports bypassing the Strait of Hormuz since the outbreak of the Iran war. According to multiple Saudi oil traders cited by Reuters, if the pipeline cannot resume operations promptly, the kingdom will exhaust its inventory reserves designated for Red Sea exports. Three industry sources familiar with Saudi export operations said storage at the Yanbu terminal can currently sustain only five to seven days of export demand. Additional sources indicated that Saudi-held inventories at Egypt's Ain Sokhna and Sidi Kerir ports could likewise last only a matter of days. Industry estimates place Yanbu's storage capacity at approximately 35 million barrels, with Ain Sokhna and Sidi Kerir holding roughly 18 million and 20 million barrels respectively, though none are currently at full capacity. The Saudi government media office and energy ministry have not responded to inquiries regarding the pipeline repair timeline, with Reuters sources estimating restoration could take anywhere from several weeks to five or six weeks, while some believe partial pumping could resume during the repair period.
The International Energy Agency (IEA) reported Friday that Saudi oil supply had already fallen to its lowest level in over three decades in August, attributed to disruptions at both the Strait of Hormuz and Red Sea routes. The agency also projected global oil supply would decline by approximately 5.7 million barrels per day this year, a drop of around 6%.
Diplomatic impasse: Hormuz talks postponed indefinitely
The summit was initially intended to mark the first formal meeting between Iran, Gulf Cooperation Council members, and Iraq since the US and Israel launched military action against Iran in February, with the agenda focused on establishing a temporary shipping corridor through the Strait of Hormuz. Iran's foreign ministry stated that Saudi Arabia requested the postponement citing the situation in Yemen. In response, the ministry pushed back, asserting that "Saudi Arabia's request to postpone the regional summit and attribute it to the Yemen situation is a diversion from the root causes of this crisis." A person familiar with the matter revealed that Saudi dissatisfaction partly stems from continued attacks on its territory by Iran-backed Houthi forces. Bahrain has categorically declined to participate in the meeting, citing recent attacks on the Gulf region by Iran-aligned armed groups. The proposal under discussion at the summit, jointly put forward by Oman and Iran, would essentially grant Tehran authority to determine which vessels may enter the Persian Gulf, potentially imposing fees on transiting ships.
Tensions in the Strait of Hormuz continue to escalate. The UK Maritime Trade Operations (UKMTO) reported Sunday that a vessel caught fire following a projectile strike, while Iranian state media IRIB reported that a commercial ship came under "hostile attack" near Qeshm and Hengam islands, resulting in one fatality.
Dual chokepoint disruption widens supply gap
Data from Bloomberg shows combined transit flows through the Strait of Hormuz, the Bab el-Mandeb Strait, and the Suez Canal have now fallen to under 7 million barrels per day, compared with approximately 20 million barrels per day before the conflict erupted. UBS energy specialist Dominic Ellis noted that the east-west pipeline closure's impact on Red Sea exports, combined with continued Houthi disruption of Red Sea shipping, will sustain upward pressure on oil prices for the foreseeable future. He also indicated that the UBS team had earlier this month projected third-quarter earnings for energy companies to exceed consensus estimates by 40%, with refining-related names such as Repsol, Galp, and OMV potentially seeing upside of 80% to 90%.
In a separate development reported by Chinese state media on September 14, Yemen's Houthi forces claimed responsibility for an attack on a Saudi airbase in Khamis Mushait. The Houthis had also seized an island at the entrance to the Red Sea last Friday, further compounding uncertainty for Red Sea shipping. Another factor that had previously suppressed oil prices—a sharp decline in Chinese import volumes—is now reversing course. Analysts note China's imports had fallen by roughly 5 million barrels per day, partly due to drawdowns from an estimated strategic petroleum reserve of around 1.5 billion barrels; imports have now begun recovering, contributing to higher prices globally.
Upside risks to prices remain pronounced
Bernstein's warning lays bare the severity of the current situation: the triple convergence of Strait of Hormuz chokepoint disruption, Red Sea shipping interference, and Saudi Arabia's east-west pipeline closure is placing unprecedented strain on the global oil supply system. Chris Wright has attempted to steady market expectations, noting that combined flows through the Strait of Hormuz and bypass pipelines have recovered to more than two-thirds of pre-conflict levels, adding that "the global oil market is tighter than we would like, but not overly tight." However, with Saudi inventory buffers narrowing to just days of cover and diplomatic negotiations at an impasse, market pricing for supply disruptions is likely to persist. With roughly 50 days remaining until the US midterm elections, the political pressure on President Trump's Republican Party from surging oil prices cannot be overlooked.
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