Saudi Pipeline Shutdown Exposes Failure of Plan B, Drives Oil Prices Higher

The recent drone attack on Saudi Arabia's East-West pipeline has exposed the failure of Riyadh's Plan B, which aimed to bypass the Strait of Hormuz and ensure oil exports. The pipeline shutdown removes a key Red Sea escape route for crude, while traffic through the strait remains far below pre-war levels. This is not just a geopolitical risk premium, but a logistics problem that can raise freight costs, delay cargoes, and force refiners to compete more aggressively for available barrels.

According to Rystad Energy, the East-West pipeline carried between 2.6 million and 4 million barrels a day through the Red Sea port of Yanbu since late August. With repairs expected to take three to five weeks, Saudi Arabia's inventories can only cushion exports temporarily. The alternative routes are also not operating normally, with traffic through Bab el-Mandeb threatened by Houthi pressure.

The result is a physical supply/logistics shock that is driving oil prices higher. Brent crude futures gained about 1.3% to $107.01 in early Asian trade, while WTI rose a similar amount to $102.69. US diesel averaged a record $6.23 a gallon on Monday, showing how disrupted energy flows can quickly feed into transport and production costs.

Commonwealth Bank of Australia strategist Vivek Dhar told The Wall Street Journal that Chinese crude imports are rising while meaningful new non-OPEC+ supply outside the Middle East may not arrive until 2027. He also sees an increasingly plausible scenario in which global oil and refined-product inventories provide only five to 11 weeks of cover.