Disruption in the Strait of Hormuz: Impact on Global Oil Supply

The ongoing conflict involving the United States, Israel, and Iran has effectively closed the Strait of Hormuz, a critical maritime passage through which approximately 20% of the world's oil and liquefied natural gas (LNG) is transported. This closure has led to significant disruptions in oil production and shipping, prompting Saudi Arabia and the United Arab Emirates (UAE) to activate alternative pipelines to maintain oil exports.

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Saudi Arabia's East-West pipeline, known as Petroline, spans approximately 750 miles and connects the oil-rich eastern coast to the port of Yanbu on the Red Sea. Following recent expansions, it has a capacity of 7 million barrels per day (bpd). The UAE's Abu Dhabi Crude Oil Pipeline (ADCOP) runs 248 miles from Habshan to Fujairah, with a capacity of 1.8 million bpd. Both pipelines bypass the Strait of Hormuz, which has been rendered nearly impassable due to Iranian military actions targeting vessels in the area.

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In response to the crisis, Saudi Arabia has reportedly shut down several oil fields, including Marjan and Safaniya, reducing production by approximately 2 to 2.5 million bpd. Other Gulf producers, including Iraq and Kuwait, have also cut production, leading to a significant gap in global oil supply. The International Energy Agency (IEA) has warned that the disruption could lead to "catastrophic consequences" for the global economy, with oil prices surging to over $119 per barrel.

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The closure of the Strait of Hormuz has caused oil prices to fluctuate dramatically, affecting markets worldwide. Countries reliant on Middle Eastern oil, particularly in Asia, are facing severe supply shortages. Governments are implementing measures such as fuel export bans and price caps to mitigate the impact on consumers. The G7 nations have discussed releasing strategic oil reserves to stabilize prices, but no consensus has been reached.

Reuters

Critics argue that the reliance on alternative pipelines may not fully compensate for the loss of shipping through the Strait of Hormuz. Ellen Wald, an energy consultant, noted that the East-West pipeline cannot simultaneously fulfill crude oil contracts and meet the demand for refined petroleum products. This limitation raises concerns about potential fuel shortages, particularly in Europe, which has become increasingly dependent on Gulf refineries.

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Amin Nasser, CEO of Saudi Aramco, emphasized the unprecedented nature of the current crisis, stating, "While we have faced disruptions in the past, this one by far is the biggest crisis the region's oil and gas industry has faced." He warned that continued blockage of the Strait of Hormuz would have serious repercussions for the global economy.

The New Arab

• “If Iran does anything that stops the flow of Oil within the Strait of Hormuz, they will be hit by the United States of America TWENTY TIMES HARDER than they have been hit thus far,” — President Donald Trump

The New Arab

• “He added, “The shipping blockage has made Saudi Arabia’s East-West pipeline one of the most critical pieces of infrastructure in the world economy.” — Amin Nasser, CEO of Saudi Aramco

Explained: How Saudi and UAE pipelines are helping bypass the Strait of Hormuz amid Iran tensions

There are discrepancies regarding the extent of production cuts and the actual capacity of the alternative pipelines. While some sources report that Saudi Arabia can export up to 5 million bpd through the East-West pipeline, others indicate that the Yanbu facility has rarely loaded more than 2.5 million bpd. Additionally, the impact of Iranian attacks on oil infrastructure remains uncertain, with ongoing threats to both shipping and pipeline operations.

CNBC

The closure of the Strait of Hormuz amid escalating tensions has created a precarious situation for global oil supply. While Saudi Arabia and the UAE are leveraging alternative pipelines to mitigate the crisis, the long-term implications for the oil market and global economy remain uncertain. As the conflict continues, the stability of energy supplies will be critical for both regional and global markets.

The New Arab