For Middle Eastern oil producers, there are fewer and fewer places to hide from Iranian violence. And because of that, oil prices are almost certain to stay high.
Saudi Arabia said Friday that it shut down its East-West oil pipeline to the Red Sea-the biggest pipeline in the Middle East-after it was attacked by projectiles. The Wall Street Journal reported that the country's foreign ministry believes the strikes on Thursday were launched from Iraq, where Iran-linked militias have been carrying out attacks. Yemen's Houthi faction has also been attacking oil infrastructure around the Red Sea in recent weeks.
Pipelines are considered the best way for Middle Eastern countries to get their oil to customers while avoiding the Strait of Hormuz, through which 20% of the world's oil used was exported before the Iran war.
The East-West pipeline has been particularly important to Saudi Arabia, allowing it to divert 7 million barrels of oil per day to the opposite side of the Middle East from the Strait of Hormuz. The country exports as much as 5 million of those barrels from a terminal on the Red Sea. If those supplies become unavailable because of the pipeline damage, the world will be at a more severe oil deficit-and prices are almost certain to rise. On Friday, Brent crude, the international benchmark, settled at $104.61 per barrel, up 8.7% on the week.
This problem isn't going away. Even after the Iran war ends, analysts expect Iran to continue to attempt to control the Strait of Hormuz. Saudi Arabia's success at diverting its oil by pipeline convinced other countries to also start building new routes out of the region. Several have already turned their focus to new construction projects: The United Arab Emirates, which already has a pipeline around the strait to the Arabian Sea, has accelerated efforts to add more capacity. Iraq is also considering a pipeline project that could route its oil through Syria to the Mediterranean Sea. Chevron, which is considering adding oil-drilling sites in Iraq, may help build pipelines, too.
U.S. officials have also been touting pipelines as an alternative to the Strait of Hormuz, which would blunt Iran's power. Treasury Secretary Scott Bessent said earlier this month that he expects the strait to be "worthless" in two years once countries find other ways to get their oil out. But if the pipelines are vulnerable, too, Iran could retain its power over the market.
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