Global Energy Crisis Deepens
As the United States/Iran conflict widens, Saudi Arabia has closed its crucial east/west pipeline after it was attacked by drones launched from Iraq, and officials confirm the attack originated in the southeastern province of Maysan. Saudi officials have yet to announce how badly the pipeline has been damaged, however, the president of Lipow Oil Associates suggested that a pump station had been seriously damaged and that engineers may be able to bypass the station resulting in a lower output, though on-line pictures show that repairs may take months. A meeting between the gulf states and Iran to be held in Salalah regarding the Strait of Hormuz has subsequently been cancelled due to the pipeline attack by Iran.
*Saudi Arabian East/West Pipeline – This pipeline is known as the Petroline and stretches for 746 miles from the Abqaiq oil fields in the eastern province (close to Bahrain and Qatar on the Persian Gulf coast) to the port city Yanbu on the west coast by the Red Sea. The pipeline was built during the 1980’s allowing Saudi Arabian oil exports to bypass the tanker war in the Persian Gulf, which was a result of the war between Iran and Iraq. The pipeline serves as a strategic and critical lifeline not only to Saudi Arabia but to the global economy, and is currently pumping 7 million barrels a day, which is the pipeline’s maximum capacity.
As result of the pipeline closure, the Benchmark Brent Crude price has risen and is trading today at circa $107.84 p/bl having briefly gone through the $108 p/bl mark. WTI (West Texas Intermediate) is also up, trading within a range of circa $101.81 p/bl – $103.86 p/bl, having recently surged past the $100 p/bl mark. During the past week, oil prices have continued to rise due to the on-going conflict in the Middle East, and in the US, consumers saw the retail price of diesel shoot past $6.00 per gallon, being a record price for the fuel. Experts note that supply chain difficulties are the reason for the recent surge in energy prices, and the longer the east/west pipeline remains shut, there remains the potential for further increases in energy prices.
Furthermore, Iranian backed Houthi rebels have been advancing towards coastal areas of the Red Sea which border the strategic Bab el-Mandeb Strait or Gateway*, and with the Houthis attempting to seize the Yemeni port city of Mokha, could well impact maritime security in the area – resulting in pushing crude oil prices even higher. The Houthis have already been disrupting shipping in this area through its control of Hodeida, another port city, and if they take control of Mokha this would most certainly see the rebels tightening its grip on the strait.
*Bab el-Mandeb Gateway – Often translated from Arabic as the “Gate of Tears” or the “Gate of Grief”, possibly an apt description considering the current state of affairs in the Middle East. It is located between the Horn of Africa and the Arabian Peninsula and is one of the world’s most critical maritime chokepoints, as well as a crucial shortcut between Europe and Asia. Historically, the gateway has handled circa 10% – 12% of all global trade and acts as a primary artery for energy transportation between Asia, the Middle East and Europe. Analysts advise that millions of barrels of petroleum products transit the gateway daily and its closure will have a direct effect on the global economy.
Elsewhere, European gas prices have had five weeks of consecutive gains, and at the start of this week continued to head north as risks to supply were compounded by the closure of the east/west Saudi pipeline. Due to the Middle East confrontation, LNG supplies from Qatar have been crippled and Europe is heading into winter with its lowest level of gas storage for twenty years.
Today, the competition is cut throat for LNG cargoes that do not have cross geographically charged checkpoints, and as winter approaches, experts advise there is the potential for a global fight for fuel. Data shows that the competition for LNG is intensifying in Asia where spot prices for LNG surged to levels not seen since 2022, and as buyers in Asia and Europe compete for alternative cargoes, the price for European natural gas has dramatically risen.
The IEA (International Energy Agency) has warned that oil consumption for the remainder of 2026 will fall and have accordingly cut forecasts for oil demand as the Middle East Conflict between the US and Iran continues unabated. The IEA projects that the drop in oil demand for 2026 will be 2.5 million b/pd (barrels per day), and due to the current crisis, it is estimated there will be a deeper shortfall in supply than originally advised.
Forecasts for Benchmark Brent Crude Oil at the close of 2026 vary among major financial institutions and energy advisory firms: JP Morgan projects $78/bbl, HSBC has revised its estimate to $90/bbl, the EIA (U.S. Energy Information Administration) predicts $89–$90/bbl, and Barclays maintains an average forecast of $100/bbl. Some analysts predict even higher prices, but the world waits to see if there is any conclusion to this conflict on the horizon, as consumers globally see their costs of living going forever higher.
