Nikos Tagoulis, senior analyst at Intermodal, reported on the current status of the East-West pipeline, which, with a maximum capacity of about 7 million barrels per day, has become the main alternative route to bypass the Strait of Hormuz and export Saudi oil. Given the escalating crisis in the Middle East, the oil flow from this pipeline has significantly increased from about 750,000 barrels per day to over 4 million barrels per day.
Impacts on the Oil Market
Tagoulis emphasized that since the UAE pipeline, Habshan-Fujairah, operates near its approximate capacity of 1.8 million barrels per day and the northern route from Iraq to Ceyhan has a lower capacity, the East-West pipeline has become a vital safety valve for Saudi oil exports. If this pipeline were to shut down, flexibility in oil transportation would be severely reduced, and the duration of the flow interruption is uncertain, which could last up to 8 weeks.
Risks and Challenges
These attacks have raised concerns about further strikes on pipelines, refineries, and export infrastructure. The absence of Saudi oil is critically significant, as the country accounts for about 15% of global crude oil trade. Saudi crude oil production in August fell to 6.24 million barrels per day, the lowest reported level since 1990. This decline has been due to Houthi disruptions in maritime transport in the Red Sea and the country’s export restrictions.
Tagoulis added that for oil carriers, the escalation of the current situation will have greater impacts on the tanker market. A prolonged shutdown of the East-West pipeline effectively removes the most important alternative route to bypass Hormuz from the market, which in turn leads to increased transportation costs and further pressure on freight rates. Revenues related to the Middle East have reached very high levels, but these returns are increasingly theoretical, as the number of owners willing to take risks in this region is limited.
Given these conditions, the timing of the resumption of flows in the East-West pipeline is very crucial. The return of this important route to service will create significant flexibility in exports and help reduce pressure on regional energy flows.
