The Saudi East-West pipeline closure will be short-lived, lasting only days before the vital crude oil conduit reopens, US Energy Secretary Chris Wright said on Tuesday. Wright made the comments in Houston, where energy officials from G20 nations are gathered.
‘This will be a brief and temporary interruption. It will be measured in days,’ Wright told CNBC’s Morgan Brennan, adding that the pipeline would be back in operation ‘very soon’.
What happened to the Saudi East-West pipeline
Saudi Arabia shut down the pipeline late last week after it sustained damage in drone attacks launched from Iraq. Wright said Iran-backed proxy groups were responsible for the strikes. According to the Times of Israel, two pumping stations serving the pipeline were damaged in the attack, which helps explain both the scale of the disruption and the uncertainty around how quickly normal operations can resume.
Satellite imagery appears to show extensive damage to at least one of those stations. Andy Lipow, president of Lipow Oil Associates, wrote in a note on Monday that, ‘judging from the on-line pictures, it will take months to repair.’ Saudi Arabia has described the closure as a ‘precautionary measure’ and has not provided a damage assessment or said how long the pipeline will remain shut.
The pipeline is a major artery in the global oil network. Stretching 1,200km (746 miles) across the Arabian Peninsula, it connects the country’s eastern oil fields to the Red Sea port of Yanbu, according to Al Jazeera. That route allows Saudi Arabia to export crude without sending tankers through the Strait of Hormuz, a narrow waterway that has become a focal point of tension between the US and Iran.
The Saudi East-West pipeline closure and its effect on oil markets
US crude oil prices have gained more than 5% this week, trading above $105 per barrel, as traders try to gauge how severe the supply disruption could become. The numbers behind that concern are substantial.
Matt Smith, director of commodity research at Kpler, said the market could lose 120 million barrels if the pipeline stays closed for a month. That estimate assumes exports of 4.5 million barrels per day pass through the pipeline, with a further 15 million barrels stored at the Yanbu terminal on the Red Sea, Smith said.
To put that capacity in context, CNBC reports that the pipeline is estimated to have a total design capacity of 7 million barrels per day following recent expansions, making it one of the largest crude oil pipelines in the world. The gap between that maximum throughput and the 4.5 million barrels-per-day figure used in Smith’s projection suggests not all of that capacity was being used before the shutdown.
Saudi Arabia reroutes exports through Hormuz
While the pipeline is down, Saudi Arabia is shifting some of its crude exports back through the Strait of Hormuz, the route the East-West pipeline was specifically built to bypass. Wright said this rerouting is happening with US military support.
The Strait of Hormuz is a chokepoint through which a large share of the world’s seaborne oil passes, and it sits at the centre of ongoing tensions between Washington and Tehran. Riyadh built the East-West pipeline in part to reduce its dependence on that route, so the current situation places it back in a position of vulnerability it had sought to avoid.
Wright’s assurance that the disruption will last only days stands in contrast to the assessment from Lipow Oil Associates, which suggests the physical repairs could take considerably longer. Whether Wright is referring to the resumption of partial flows or a full return to normal operations was not made clear in his comments. Riyadh, for its part, has yet to offer any timeline of its own.
