Iran backed Houthi attack on Saudi pipeline threatens global supply
(The Center Square) — The Iran-backed Yemeni Houthi attack of a key Saudi Arabian East-West pipeline has restricted Persian Gulf exports of crude oil and other products causing gas prices to skyrocket just months ahead of the midterm elections.
With 50 days to the midterm election, the Iran war and high gas prices and other increasing costs are expected to negatively impact Republicans, The Wall Street Journal reported.
Gas prices as of Monday morning hit $4.31 a gallon and diesel, $6.23 a gallon, the highest in U.S. history, according to AAA data.
Last week, Houthi rebels launched missile and drone attacks into southern Saudi Arabia, hitting its key pipeline after hitting it in April. The pipeline spans roughly 745 miles from oil-producing and processing facilities near Abqaiq to Yanbu on the Red Sea. It carries between 4-5 million barrels per day (bpd) of crude oil, bypassing the Strait of Hormuz.
The strait has been a focus of control between the U.S. and Iran throughout the U.S.-Israel-led war against Iran. Prior to the war, Houthi rebels attacked ships in the straight resulting in the U.S. launching Operation Rough Rider last March, The Center Square reported. The Trump administration claimed targeted air and naval strikes obliterated the Houthis but one year later, this spring, Houthi rebels attacked Israel and Saudi Arabia. Houthi attacks against the Saudi pipeline in April and September led to its closure for repairs. In both cases, gas prices skyrocketed.
“The market is moving up on the East-West pipeline closure in Saudi Arabia which is simply more bad news for consumers,” Andy Lipow of Houston-based Lipow Oil Associates said in a forecast emailed to The Center Square. “Diesel prices are up about 80 cents per gallon over the last month and 70% higher than one year ago. Refineries in North America and Europe are producing as much as they can. Damage from missile/drone strikes in the Middle East and Russia are crimping about 2 million bpd of diesel supply, representing 8% of the world demand.”
It’s unclear how long the pipeline will be shut down but the longer the shutdown, “the higher the price. Judging from the online pictures, it will take months to repair,” he added.
Losing oil exports from the pipeline, “even temporarily, removes one of the last reliable bypass routes at the exact moment flows through the strait are already severely constrained,” Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association, told The Center Square. “The Houthi capture of Perim Island adds a second threat, to the Bab el-Mandeb Strait, the same route Saudi Arabia would otherwise lean on more heavily right now. When the world’s largest crude exporter loses access to two alternate routes in the same week, that’s a direct threat to global supply.”
A prolonged shutdown of the pipeline “will drive the national retail price of gasoline to over $4.50 per gallon and the price of diesel fuel to over $6.50 per gallon,” Lipow said. In California, which already has the highest gas prices in the country, gasoline and diesel prices would hit $6.50 and $8.50, respectively, he said.
As of Monday morning, oil futures were trading at $103/barrel on the domestic West Texas Index. The national average price of gasoline was $4.32/gallon and for diesel, $6.23/gallon.
Californians can expect gas to top $6/gallon and diesel more than $8/gallon, but the impact will affect all consumers Lipow said. “With 40% of the nation’s container imports coming into Los Angeles/Long Beach where it is unloaded onto trucks and trains that use diesel, you can be assured that consumers will see higher delivery charges and prices for the stuff they are buying,” he said.
“The impact of the Houthi pipeline attack and subsequent shutdown are far reaching,” he added. “Not only are crude oil exports out of Yanbu affected, so too are refined product exports from the five Saudi refineries along the Red Sea coastline. Crude oil and refined products transiting the Suez Canal from the Mediterranean to the Red Sea and vice versa to and from India and Asia may also be affected if the Houthis blockade the Bab-al Mandeb Strait.”
Additionally, while supplying 1.8 million bpd to its refineries on the Red Sea coastline, the pipeline is used to divert 4 to 5 million bpd of crude oil that had been transiting the Strait of Hormuz.
“In total, the pipeline shut down could impact nearly 7 million bpd of crude oil which will ultimately affect already tight gasoline, jet fuel, and diesel supplies,” Lipow said.
To meet the shortfall, the U.S. will import roughly 4 million bpd of crude from Canada and continue exporting domestically produced crude, with the majority being produced and exported from Texas and New Mexico, and liquified natural gas from Texas and Louisiana.
Conflict in the Middle East and Persian Gulf is “exactly why sustained investment in domestic production and export infrastructure here in Texas matters as much as it does,” Longanecker said. “U.S. crude production is already at record levels. The U.S. Energy Information Agency has projected domestic production is on track to average 13.8 million bpd this year, led by the Permian.
“Those barrels are moving through Gulf Coast export terminals now. If the East-West line stays down, the market will pull on that supply first. New completions still take weeks and months. Yanbu has five to seven days of inventory. That gap is what the price is reflecting this morning.”
As U.S. crude production has increased, led by Texas, reliance on Persian Gulf supply has declined over the last 25 years. In 2001, the U.S. imported nearly 2.7 million bpd of crude oil and refined products from the Persian Gulf. Last year, it imported 490,000 bpd, an 80% decline, according to federal data.
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