Global Oil Supplies Under Pressure as Saudi Arabia Joins Strait of Hormuz Closure
The seven-month-old war in West Asia has now engulfed Saudi Arabia, the world’s largest oil exporter, adding to the pressure on global oil supplies. The Strait of Hormuz has been closed since February 28, while a drone attack on the East-West pipeline on September 10 closed the western route for Saudi crude exports. The disruptions sent Brent crude oil prices soaring to $109.4 per barrel; they are at $104.2 now.
The closure of the Strait of Hormuz, which carried 20% of global oil supplies, including 15 million barrels of crude oil and 5 million barrels of petroleum products, has significant implications for the global energy market. Saudi Arabia could continue to export 4 million barrels of crude oil through the East-West pipeline, while the UAE exported 1.5 million barrels through the Habshan-Fujairah pipeline, allowing both countries to partially circumvent Hormuz.
US Sanctions Threaten to Worsen Oil Supply Disruptions
The signing of the Lindsey O Graham Sanctioning Russia and Iran Act by President Trump has raised concerns about further disruptions to global oil supplies. The Act targets Iran and Russia, two major oil-producing nations, and could lead to a minimum disruption of 13-14 million barrels per day of crude oil supply. Russia currently exports around 3.5 million barrels per day.
The US naval blockade of Iranian ports puts pressure on Tehran, but also affects America’s Gulf allies by reinforcing Iran’s determination to continue blocking the Strait of Hormuz. The impact is also being felt in the US, with petrol prices at the pump reaching $4.30 per gallon, above the comfort level of $4 per gallon, while diesel prices have risen to $6.75 per gallon, affecting the farming sector in an election year.
Regional and Global Consequences of Oil Supply Disruptions
The disruption also extends to petroleum products and LNG, which is carried at -163 degrees and cannot be transferred on the high seas. The Indian government’s statement that the Act will have implications “for not just the bilateral relationship but also the international energy market” is fully justified.
The US benchmark, WTI, has already risen from $67.02 per barrel on February 27 to $92.41 now, and invoking the Graham Act could hurt not only the economies of targeted countries but also US consumers, as higher international oil prices would translate into higher prices in the US.
Regional Conflicts Escalate Amid Oil Supply Disruptions
Meanwhile, Saudi-backed forces have taken a beating in Yemen, with the Houthis capturing Mocha port and occupying Perim Island in the Red Sea. They have also bombed Saudi Arabia‘s border towns and Riyadh. President Trump has declined a Saudi request to get directly involved in combat operations.
Support from the US, as well as the UK and France, remains limited to intelligence and logistics. Turkey and Pakistan have also not taken any concrete steps in support of the Saudis despite having signed the Mecca pact, which contains a collective security clause.
Original Article: From Hormuz to Saudi to US sanctions, world feels the oil heat — Inkl