Yemen’s Iran-backed Houthis have opened a new front in the ongoing war in West Asia. Saudi Arabia has faced constant attacks from the Houthis this week, with the group not only capturing a key port on the Red Sea but also seizing strategic islands and making its biggest territorial gains in years along the Bab el-Mandeb Strait. These developments are likely to impact global oil supply.
The Houthis’ expanding control represents a major strategic win for Iran and an a growing energy stress on countries whose oil dependency is on this route.
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The Red Sea route was being used by Saudi Arabia after the Strait of Hormuz was blocked during the US-Iran war. Now, with the Houthis gaining control of the Red Sea route and the shipping corridor around the Bab el-Mandeb Strait, Saudi Arabia’s ability to move oil through the route could eventually be disrupted.
Saudi Arabia, the world’s largest oil exporter, said on September 12 that it had shut down its East-West pipeline after it was attacked the previous day. The Saudi Ministry of Energy called the shutdown “a precautionary measure.”
The Houthis have not directly claimed responsibility for the attacks. Saudi Arabia has said the strikes were carried out from bases in Iraq that have been used by the Houthis.
The Houthis did, however, issue a warning regarding the Red Sea route, saying that “maritime navigation is safe for all companies except for Saudi vessels.”
These two developments – Houthis gaining control of Red Sea corridor and attack on oil pipeline – have raised concerns about a potential disruption to Saudi Arabia’s oil exports.
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According to Reuters, traders have warned that the Saudi pipeline outage could threaten the loss of 4% of global oil supply unless pumping resumes within days.
What is the significance of the East-West pipeline?
The 1,200-km East-West pipeline was built in the 1980s and has played a key role in Saudi Arabia’s ability to export oil following the closure of the Strait of Hormuz during the Iran war.
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By early June, Saudi Arabia had more than doubled oil exports from the Red Sea port at the pipeline’s western end to more than 5 million barrels per day, according to the International Energy Agency, as cited in a PTI report.
Houthi efforts to close the 28-km-wide Bab el-Mandeb Strait have made the route increasingly complicated for shipping.
Focus on crude oil prices
Ongoing attacks amid the widening Middle East war could send energy prices even higher after a week that saw the price of Brent crude surge back above $100 a barrel, according to a Reuters report.
Brent crude oil – the global benchmark – currently costs more than $104 per barrel, and if this pipeline is not reopened in time, there could be an increase in global energy prices.
Saudi political analyst Khalid Bartafi told Al Jazeera that the attacks on the pipeline could cause a crisis for the global community.
“It’s going to be very dire consequences because we are talking about five million barrels of oil for export disappearing from the market,” he said. “The next 48 will tell you whether this is going to remain some sort of contained incident or this is going to become yet another major regional escalation.”
He added: “This is not just our problem, it’s a global problem because if Iran could close both the Strait of Hormuz and Bab al-Mandeb the world will pay. The world community needs to do something.”
Impact on India
Experts say that a rise in crude oil prices will have an adverse effect on India, as it is likely to lead to higher inflation and put pressure on the rupee.
“For India, crude oil remains the most immediate external risk. Any renewed rise in crude prices, particularly if disruptions to Middle East oil flows intensify, could add to inflationary pressures, widen the import bill, weigh on the rupee and squeeze corporate margins, Hariselvan Radhakrishnan, Founder & CEO of HST Wealth, a Research Analyst firm, said, according to PTI.
As Iran faces sanctions, India’s oil imports from Saudi Arabia jumped by 32 per cent after US sanctions against Iran came into effect, making Riyadh the second-largest crude supplier to India, according to Arab News. If the shipping route is not restored to normalcy, this could impact India adversly in the week to come.
