Saudi oil pipeline closure puts Asia’s economic resilience to the test

Saudi Arabia's East-West pipeline has been shut down as a precautionary measure following an attack last week. This closure removes a crucial bypass for oil shipments, particularly impacting Asian economies heavily reliant on imported energy. The disruption exacerbates an existing energy shock that has already driven crude oil prices above $100 a barrel. Analysts predict this will first affect Asian refiners, subsequently leading to increased inflation, currency depreciation, and slower economic growth across the region. Saudi Arabia, the world's largest oil exporter, has not provided details on the extent of damage or a timeline for restarting operations, increasing the risk of delayed or reduced crude deliveries to Asian buyers if the outage persists.

Saudi Arabia, the world's second-largest crude exporter, is rerouting oil exports via "dark shipments" and ship-to-ship transfers off Oman following drone attacks that disrupted its East-West pipeline. This pipeline, crucial for bypassing the Strait of Hormuz, is estimated to be out of commission for three to five weeks, significantly impacting global supply. With the western route closed and the southern Red Sea route hostile, Saudi Arabia is increasingly relying on its Gulf terminals to export crude through the Strait of Hormuz, despite higher costs and risks. This shift has led to a substantial drop in total Saudi crude loadings, falling over 70 percent from January/February levels. Experts suggest this situation will further increase freight costs and create inefficiencies in Middle East exports.

Iran may be forced to cut oil production if the US naval blockade of the Strait of Hormuz persists, according to experts. Analysis suggests Iran could exhaust its crude oil storage capacity within 12 to 22 days. The Strait of Hormuz, a vital waterway for global oil and LNG supplies, has been partially or fully restricted by Iran since February 28, coinciding with air strikes by the US and Israel. Iran claims the security of the strait is not free and links its openness to the lifting of US restrictions on its oil exports. The US naval blockade began on April 13, leading to concerns about Iran's ability to export its oil and manage its storage levels.