Saudi Pipeline Attack May Be Overreaction, Oil Prices May Soar for No Reason

The recent attack on the East-West pipeline in Saudi Arabia has caused oil prices to spike, but according to Robin J Brooks, this reaction may be overblown. The attack was not carried out by the Houthis, but rather by drones launched from inside Iraq, which suggests that Iran was involved.

This means that the disruption to global oil supply will likely be minimal, as the pipeline's storage tanks can continue to operate while repairs are made. Brooks cites data from TankerTrackers' Samir Madani, who has been tracking tanker volumes and oil infrastructure in the region.

The current price of Brent is around $10 higher than it should be, according to Brooks' estimates. He bases this on a framework that assumes a permanent disruption to supply of 4 mb/d, which would see Brent prices rise to $109. However, with repairs expected to take only a week, the actual impact will be much smaller.

Brooks also notes that Iran is losing control over the Strait of Hormuz, as shown in data from Samir Madani. This means that the supply shock from the war with Iran is gradually fading, not getting worse.