Saudi Arabia's East-West Pipeline Shutdown Pushes Brent Toward $108

Saudi Arabia has shut its East-West pipeline after drones launched from Iraq struck it on Thursday, extending a rise in crude prices that continued through last week. Brent traded 3.1 percent higher at $107.87 a barrel on Monday, after gaining almost 9 percent the previous week.

The line matters more than its age suggests. It carries crude from the eastern oil fields to the Red Sea port of Yanbu, with capacity of up to 7 million barrels a day, and Riyadh has been using it to route exports away from the Gulf while the United States and Iran contest control of the Strait of Hormuz. With the pipeline down, that alternate route is gone, and a larger share of Saudi crude has to pass through the strait itself.

Riyadh has not said how badly the pipeline was damaged or how long repairs will take, and no party has been publicly confirmed as responsible. CNBC reports that the shutdown adds to an energy shortage already visible in refined products, with United States diesel prices climbing sharply.

For an oil market that spent two years assuming spare capacity would limit any geopolitical disruption, the episode changes the arithmetic. Spare capacity is worth little if the oil cannot reach a buyer. The premium now being paid is not for crude in the ground but for crude that can physically move, and that premium tends to persist well after the immediate incident, because insurers and shippers adjust routes and pricing more slowly than traders do.