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Saudi Arabia shuts oil pipeline after attack in latest sign of rising Middle East tensions

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Saudi Arabia shuts oil pipeline after attack in latest sign of rising Middle East tensions

Highlights

Houthis claim drone attack on pipeline

East-West line pumps around 2 million b/d

Tensions rising over Iran sanctions

Tensions over threats to oil flows from the Middle East escalated sharply Tuesday after an attack claimed by Houthi rebels halted flows through Saudi Arabia's main oil transport pipeline to the Red Sea.

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Citing Saudi energy minister Khalid al-Falih, the Saudi Press Agency said Saudi Aramco's key East-West oil pipeline suffered limited damage from armed drones on Tuesday, referring to the incident as "terrorist and sabotage act."

The drone attack came just days after one of the biggest attacks on oil tankers near the Strait of Hormuz transit chokepoint, fueling concerns over a new wave of coordinated strikes on key oil infrastructure and transit routes in the Middle East.

The East-West Pipeline to the Red Sea has a nameplate capacity of about 5 million b/d, with current movements estimated at about 2 million b/d.

Also known as the Petroline, the 1,200-km pipeline runs from Abqaiq to the Yanbu Port where it feeds export terminals and refineries on the Red Sea.

The pipeline was shut after a fire at Pump Station No. 8 that was later contained, leaving minor damage, Aramco said, adding it is currently evaluating damage from the attack and working to restore operations.

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It said its gas and oil production was unaffected by the incident and there were no injuries.

A television station run by Yemen's Houthi group reported that the Iran-aligned movement had launched drone attacks on Saudi installations, without identifying the targets or time of the attacks. The Masirah TV report cited a Houthi military official as saying that "seven drones carried out attacks on vital Saudi installations."

Saudi Arabia ships about 10% of its total crude exports to Europe through the line to the Red Sea. The line is also critical to Saudi Arabia's own Red Sea refineries, which are mainly supplied with crude oil produced in its eastern region shipped from the Persian Gulf.

Oil prices rose by more than 1% after the announcement of the Saudi pipeline attack with Brent 1.7% higher at $71.40/b in afternoon US trade.

ALTERNATIVE EXPORT ROUTES

Attacks on four oil tankers on Sunday near the geopolitically sensitive Strait of Hormuz erupted on Sunday, raising the specter of oil supply disruptions in the region at a time when US sanctions against Iran and Venezuela are already curbing output.

Two Saudi oil tankers were damaged by "sabotage" on Sunday off the coast of the UAE in the Persian Gulf, without causing any oil spills or casualties.

Falih at the time didn't point the blame at any party and it is still unclear who the perpetrators of those attacks were. One UAE-flagged vessel and another Norway-flagged ship were also sabotaged near Fujairah, one of the world's biggest bunkering hubs which lies outside Hormuz.

Combined, the latest attacks have effectively hit the two main alternative supply routes for both Saudi Arabia's and the UAE's oil exports outside of the Persian Gulf.

"Given that nearly one-third of global oil production is produced in the Middle East and nearly all of global spare capacity sits in the region, the oil market reacts very sensitively to any attacks on oil infrastructure in this region," said Giovanni Staunovo, an analyst at UBS in Zurich.

The Saudi pipeline shutdown is another concern for the market because it is an alternative export route for Saudi oil in case of disruptions in Hormuz, he said.

"The targeting of Saudi Arabia's East-West pipeline is significant, especially at a time when markets are worried about the potential for disruption to the flow of oil through the Strait of Hormuz," said Torbjorn Soltvedt, principal MENA analyst at Verisk Maplecroft.

"We need peace," OPEC Secretary General Mohammed Barkindo said. "This region has seen enough of turmoil, the most strategic region in the world, whatever happens here affects the rest of the world."

IRAN 'PREDICTED' ATTACKS

Tensions are rising between Washington and Tehran over the Islamic Republic's nuclear program and US sanctions against its energy industry.

The US has tightened the reins over Iran's oil industry after the White House said it had received assurances from Saudi Arabia and the UAE that they could plug any shortfall in oil supply.

Last year, Saudi Arabia temporarily halted shipments through the Bab el-Mandeb chokepoint in the Red Sea after two of its oil tankers were attacked by Houthi rebels. Bab el-Mandeb connects the Red Sea to the Gulf of Aden in the Arabian Sea and is located between Yemen, Djibouti and Eritria. Saudi Arabia and the UAE are involved in the Yemen war.

"These attacks prove again that it is important for us to face terrorist entities, including the Houthi militias in Yemen that are backed by Iran, SPA quoted Falih as saying.

Speaking after a meeting with his India counterpart in New Delhi, Iran's foreign minister Javad Zarif said Iran had "predicted that some would want to escalate tension in the region by some actions...There are worries about suspicious actions and sabotages that are going on in the region and we had predicted them before."

Saudi Arabia pumped 9.82 million b/d in April, the lowest in over four years and well below its quota under an OPEC/non-OPEC cuts accord, according to the latest S&P Global Platts survey.

-- Dania Saadi and Miriam Malek, with Aresu Eqbali in Tehran and Robert Perkins in London, newsdesk@spglobal.com

-- Edited by Jonathan Fox, newsdesk@spglobal.com