Oil prices surged towards $110 per barrel on Monday as escalating attacks around the Middle East threatened key crude supply routes, with the shutdown of Saudi Arabia’s East-West Pipeline adding to concerns over prolonged disruptions.
As of 3:30 p.m. West Africa Time, Brent crude rose 4.35 percent to $109.20 per barrel, while West Texas Intermediate (WTI) climbed 4.04 percent to $104.10 per barrel.
The latest rally came as markets assessed mounting risks around the Strait of Hormuz, the Red Sea and Saudi Arabia’s alternative crude export route. Brent had already gained more than 3 percent when trading resumed on Monday, while WTI moved above the $100 mark.
The immediate pressure on the market intensified after Saudi Arabia shut its East-West Pipeline following a drone attack. The 1,200-kilometre pipeline links oil-producing areas in eastern Saudi Arabia with the Red Sea port of Yanbu, allowing crude to bypass the Strait of Hormuz.
The pipeline has a maximum capacity of about 7 million barrels per day, although recent flows have been lower. Saudi Arabia had increasingly relied on the route after the conflict restricted shipments through Hormuz.
The shutdown has raised concerns that Saudi Arabia could face increasing difficulty moving crude to international markets if the disruption persists. Reuters reported that Asian refiners were already awaiting guidance from Saudi Arabia on loading schedules from Yanbu, with some expecting delays and tighter availability of sour crude.
The supply concern is particularly significant because Yanbu is now one of the kingdom's critical outlets for crude exports outside the Persian Gulf. Reuters reported that loadings from the port had already fallen sharply amid the Houthi blockade, while some Asian refiners have stopped taking cargoes from the Red Sea because of security and freight concerns.
The situation has been compounded by growing instability around the Bab el-Mandeb Strait, another major energy and trade chokepoint.
Yemen's Houthi forces have tightened their presence around strategic locations near the waterway after capturing Perim Island and advancing towards other islands in the Red Sea. The developments have increased concerns that shipping could face pressure at both ends of the Middle East's major maritime routes.
The Bab el-Mandeb is a critical passage for international trade and energy shipments between the Red Sea and the Gulf of Aden. Its growing vulnerability, alongside the disruption around Hormuz, has heightened concerns over the ability of producers to maintain reliable export routes.
The Gulf states also called off a planned meeting with Iran on Monday aimed at discussing the reopening of the Strait of Hormuz, further reducing immediate hopes of a diplomatic breakthrough.
The postponement came as Yemen's Houthis launched missiles and drones towards Saudi Arabia's King Khalid airbase in Khamis Mushait. The attacks followed intensified Saudi military operations in Yemen, adding another layer of geopolitical risk to an already strained energy market.
The developments have effectively placed two major oil and shipping chokepoints under heightened pressure while Saudi Arabia's own alternative export route remains impaired.
The market is also watching the impact on refined products. U.S. diesel prices have reached a record above $6.23 per gallon, reflecting the broader tightening in energy markets as crude supply risks feed through to fuel prices.
However, the duration of the oil rally will depend heavily on how long the supply disruptions persist. ING has maintained its fourth-quarter Brent forecast at $80 per barrel, pointing to the fact that significant volumes are still moving through the Strait of Hormuz despite the disruption.
For now, however, traders are pricing in a significantly higher geopolitical risk premium. Brent's move above $109 puts the benchmark within striking distance of $110, while WTI's move above $104 underscores the scale of the latest market reaction.
The latest surge also comes against a backdrop of uncertainty over U.S. involvement in the widening regional conflict. Saudi Crown Prince Mohammed bin Salman met U.S. Central Command chief Admiral Brad Cooper in Jeddah on Monday after Riyadh sought stronger American action against the Houthis, although Washington has so far offered intelligence-sharing rather than direct strikes.
With the Hormuz situation unresolved, the Saudi pipeline offline and Houthi forces strengthening their position around the Red Sea, further disruption could keep crude prices elevated and increase pressure on global fuel markets.
If the outages persist, traders may increasingly focus on how much spare supply can reach markets through alternative routes, and whether those routes themselves remain secure.