Drone Attack Brings Saudi Oil Exports to the Brink

Saudi Arabia's oil exports are under threat after a drone attack halted operations on the East-West pipeline to the Red Sea coast. The shutdown could remove up to 4% of global oil supply from the market, with estimates suggesting repairs may take five to six weeks.

The pipeline has been critical in allowing Saudi Arabia to mitigate the effects of the war-related closure of the Strait of Hormuz, which has severely restricted oil exports from neighboring countries. About 4 million barrels of oil per day were diverted through this route, but Yanbu port reserves will last only a few days.

Saudi Arabia may temporarily supply additional volumes to customers from Egypt's Ain Sokhna port on the Red Sea and Sidi Kerir on the Mediterranean, but these reserves are also limited. Without the pipeline resuming operations, they will eventually run out, creating a risk of further cuts to Saudi exports and a worsening shortage on the global market.

The attack has added to the risks of a prolonged shutdown of the Saudi route, which could further aggravate the global oil shortage. Global fuel prices have already reached record levels, fueling inflation and pushing yields on U.S. government bonds to their highest levels since the 2008 global financial crisis.