Saudi Aramco has told European refiners they won't receive contracted crude shipments next month as damage to Saudi Arabia's East-West pipeline deepens a supply crunch already aggravated by disruptions in the Strait of Hormuz and growing threats to Red Sea shipping, according to Bloomberg. Oil prices erased steep early losses following the report.
At least two European customers were informed that no Saudi crude would be available for October, according to people familiar with the matter cited by Bloomberg. The development marks an escalation from earlier delays and cancellations affecting September cargoes after attacks knocked the East-West pipeline out of service.
Brent crude had fallen to around $101.60 a barrel early Friday before recovering to roughly $105 by 10:32 a.m. ET. West Texas Intermediate briefly slipped below $100 before rebounding to about $103.30, with the front-month contract rising more than 1%. Barron's reported WTI around $103.20 during early U.S. trading as traders reassessed near-term supply.
The reversal underscored the market's sensitivity to Saudi export capacity. The kingdom's East-West pipeline has become particularly important because it carries crude from producing regions near the Persian Gulf across Saudi Arabia to the Red Sea port of Yanbu, allowing shipments to bypass the Strait of Hormuz.
The pipeline has been shut since attacks damaged pumping infrastructure earlier this month. Three pumping stations were damaged, according to reports, complicating Saudi efforts to maintain exports at a time when normal tanker traffic through Hormuz has already been severely disrupted.
Saudi officials expect partial flows through the pipeline to resume within days as Aramco works on a bypass around damaged infrastructure. Full capacity could take roughly six weeks to restore if the system sustains no additional damage, according to people familiar with the repair effort.
The pipeline can move about 7 million barrels a day and has emerged as a critical alternative export route during the Middle East conflict. The volumes normally carried through it represent roughly 4% of global oil supply, magnifying the market impact of an extended outage.
Saudi Arabia is simultaneously confronting a second threat on its western export route. Yemen's Iran-aligned Houthis have advanced along the Red Sea coast and around the Bab el-Mandeb Strait, increasing risks to Saudi tankers and other shipping using the narrow passage connecting the Red Sea with the Gulf of Aden.
Those developments have prompted Riyadh to seek diplomatic help from Beijing. Saudi Arabia asked China to intervene with Iran, after which Beijing privately urged Tehran to use its influence over the Houthis to prevent the conflict from spreading further along critical energy routes, three Iranian sources familiar with the discussions told Reuters.
Iranian Foreign Minister Abbas Araghchi visited China this week and met Chinese Foreign Minister Wang Yi, though Reuters couldn't determine whether Beijing's request was delivered during that meeting. Tehran responded that regional stability depended on ending the U.S.-Israeli war against Iran, according to the Iranian sources.
"China does not wish to see regional tensions further spill over into Yemen and the Red Sea. Escalating regional instability is not in the interests of any party," China's Foreign Ministry told Reuters. Beijing also called for protection of infrastructure important to civilian livelihoods and for disputes to be addressed through negotiation.
China has substantial economic exposure to any prolonged disruption. It gets roughly half its imported oil from the Middle East and bought more than 80% of Iran's seaborne oil exports last year, according to Kpler data cited by Reuters, while its trade with Gulf Cooperation Council countries totals around $300 billion annually.
The pressure on Saudi exports now stretches across several routes at once: Hormuz traffic remains severely constrained, the East-West pipeline is undergoing repairs and the Houthi advance is adding risk around the Bab el-Mandeb. Saudi Arabia has also explored alternative arrangements through Oman as it works to keep crude moving while the pipeline is restored.
