“From Hormuz and the Red Sea to a Saudi Pipeline”: War-Driven Risks Send Global Oil Prices Soaring, Deepening U.S. Inflation and Election Pressures

Shutdown of Saudi East-West Pipeline sends global oil prices soaring
Disruptions hit both Hormuz and Red Sea shipping, exposing limits of alternative routes
“Devastating blow to inflation” puts Trump administration on high alert ahead of midterm elections

Global oil prices have once again posted a steep increase. The surge reflects mounting concerns over disruptions to global crude supplies after Saudi Arabia’s East-West Pipeline, a critical alternative export route, was shut down as the blockade of the Strait of Hormuz destabilized the Middle East’s energy supply chain. Markets increasingly expect that a prolonged energy shock would intensify inflationary and monetary-tightening pressures in the United States, compounding the political burden on the Donald Trump administration ahead of the midterm elections.

Saudi-Driven Oil Supply Shock

According to international media reports compiled on the 14th (local time; all subsequent dates are local), November-delivery Brent crude futures closed at $105.68 per barrel on ICE Futures Europe in London, up 1.02% from the previous session. October-delivery West Texas Intermediate (WTI) crude futures also settled at $101.39 per barrel on the New York Mercantile Exchange, up 1.34% from the previous session. Both benchmarks surged by nearly 5% at one point during intraday trading, but pared their gains after U.S. President Donald Trump wrote on his social media platform Truth Social that “Iran wants a deal (with the United States) quickly and desperately.”

The rally in global oil prices was driven by Saudi Arabia’s decision to shut down the East-West Pipeline. The 1,200-kilometer underground pipeline carries crude produced on Saudi Arabia’s eastern Persian Gulf coast to the Red Sea port of Yanbu in the west. Since the outbreak of the Iran war, Saudi Arabia has transported an average of 4 million barrels of crude per day through the pipeline, equivalent to roughly 4% of global supply. Operations along the entire route, however, have been suspended since the 11th after an Iran-aligned Iraqi Shia militia attacked the pipeline’s above-ground pumping facilities with drones on the 10th. The U.S.-based Institute for the Study of War (ISW) assessed that the Houthis and Iran-aligned Iraqi militias have recently strengthened coordination under the supervision of Iran’s Islamic Revolutionary Guard Corps (IRGC), and that the attack was highly likely an operation intended to target Saudi Arabia’s alternative export route around Hormuz.

Saudi Arabia’s Energy Export Conditions

Markets see the duration of the pipeline shutdown as a key variable that will determine the trajectory of global oil prices. Until repairs are completed, Saudi Arabia can export only crude held in storage facilities. Remaining inventories amount to five to seven days’ worth at Yanbu and several days’ worth at Egypt’s Red Sea port of Ain Sokhna and Mediterranean port of Sidi Kerir. “The relatively muted price reaction means the market expects Saudi inventories to support exports in the short term,” said Janiv Shah, an oil-market analyst at Rystad Energy. “But if the disruption persists beyond the five-to-seven-day inventory buffer, the situation could change rapidly.” Forecasts for the specific restoration timeline remain divided. Some observers expect a full return to normal operations to take at least five to six weeks, while others suggest that partial pumping could resume within several days alongside ongoing repair work.

The East-West Pipeline has come to exert such a profound influence on global oil prices because Saudi Arabia’s crude-export conditions have grown increasingly precarious. Saudi Arabia has traditionally loaded crude at Persian Gulf terminals such as Ras Tanura and Ju’aymah in the east before shipping it through the Strait of Hormuz to major markets, including Asia. Since the outbreak of the Iran war, however, the strait has been effectively blockaded, preventing the established export network from functioning properly and elevating the importance of alternative shipments through the East-West Pipeline and Yanbu.

Narrowing Routes Around Hormuz

Yanbu, however, has not proved to be a complete solution. The port lies in the central Red Sea, and crude bound for Asia must ordinarily pass through the Bab el-Mandeb Strait at the sea’s southern end. The problem is that conditions in the Bab el-Mandeb Strait have become markedly more unstable in recent months. Yemen’s Houthi rebels declared a so-called “maritime blockade” targeting vessels linked to Saudi ports on July 20 and have since designated oil facilities in western Saudi Arabia, including those in Yanbu and Jizan, as well as Saudi crude carriers, as primary targets. According to maritime intelligence provider Kpler, the seven-day moving average of crude and condensate shipments through the Bab el-Mandeb Strait fell from 5.7 million barrels per day between March and June to 4.9 million barrels per day at the end of July. The collapse of the East-West Pipeline has dealt a crippling blow by obstructing even these remaining flows.

Some volumes are also shipped north through the Suez Canal and Egypt’s SUMED Pipeline, but this route is likewise ill-suited to serve as a large-scale substitute. The SUMED Pipeline’s actual throughput has never exceeded 1.77 million barrels per day, while rerouting crude bound for Asia from Yanbu toward Suez substantially lengthens the voyage. This insecurity across shipping routes has translated into an actual decline in Saudi crude exports. Kpler data show that Saudi crude exports plunged from roughly 5.1 million barrels per day in July to around 3.1 million barrels per day last month, the lowest level in Kpler’s records since 2013. Bloomberg, based on aggregated ship-tracking data, likewise estimated that Saudi crude exports stood at approximately 3 million barrels per day last month, less than half the 7.3 million barrels per day recorded in February immediately before the outbreak of the war.

Table 1. Saudi Arabia’s Crude Oil Export Routes

Echoes of the Russia-Ukraine War

Some analysts argue that the current situation is reminiscent of developments in the Russia-Ukraine war. Since the conflict began, Ukraine has treated Russia’s energy infrastructure as a primary target. In January 2024, the Ust-Luga condensate-processing facility on the Baltic Sea and the Tuapse refinery on the Black Sea came under attack, followed that year by strikes on refineries in Volgograd, Ilsky, Nizhny Novgorod, Ryazan, Slavyansk and Syzran. In May 2024, an oil-products terminal in Novorossiysk, one of Russia’s largest Black Sea export ports, temporarily halted loading operations after a drone attack, while the Novoshakhtinsk refinery and crude-storage facilities in Rostov Oblast were hit in succession in June.

Last year, the scope of the attacks expanded to gas infrastructure and pipeline networks. In February, the Astrakhan gas-processing plant in southern Russia suspended fuel production after a Ukrainian drone attack, while pumping stations on the Druzhba Pipeline in Nikolskoye, Tambov Oblast, and Unecha, Bryansk Oblast, were attacked in succession in August. The strikes subsequently extended even farther. Late last year, Ukraine simultaneously attacked the Novoshakhtinsk refinery in Rostov Oblast, an oil-products storage facility in Krasnodar Krai and a gas-processing plant in Orenburg Oblast using British-made Storm Shadow cruise missiles and long-range drones. The Astrakhan gas-processing plant was struck again in May, causing a fire, and in July, the Omsk refinery—one of Russia’s largest and located more than 2,000 kilometers from the Ukrainian border—was also hit by Ukrainian drones.

Expected Blow to the U.S. Economy and Politics

Belligerents are targeting energy infrastructure so aggressively because energy supply-chain shocks can generate far-reaching economic repercussions. The shutdown of Saudi Arabia’s East-West Pipeline, for example, could place an additional burden on U.S. inflation, which is already facing upward pressure from elevated oil prices. According to the U.S. Department of Labor, the U.S. Consumer Price Index (CPI) rose 0.4% month on month and 3.4% year on year in August. The gasoline index jumped 3.9% in a single month and accounted for more than one-third of the CPI’s overall monthly increase, while energy prices surged 2.1% from the previous month and 16.3% from a year earlier. Gasoline prices rose 27.4% year on year, while heating oil prices climbed 52.0%.

Pressure for monetary tightening is also mounting. Reuters recently reported that “after last month’s CPI increase exceeded expectations, markets began assigning greater weight to the possibility that the Federal Reserve (Fed) would raise its benchmark interest rate this month.” The situation is imposing an enormous burden on the Trump administration ahead of the midterm elections in November. Inflation aggravated by the protracted war and persistently high interest rates have fueled resentment toward the Republican Party. An exit strategy also remains elusive. President Trump publicly acknowledged on the 9th that “global oil prices, which have surged because of the Middle East war, may not fall sufficiently before the midterm elections.”