Is the “$200 nightmare” of oil prices approaching? Saudi oil artery was attacked and shutdown+double strait shipping disrupted, global oil supply continues to be pressured

The Zhitong Finance App learned that Saudi Arabia, one of the world's largest oil producers, is being attacked. Although this incident has taken up all the news pages, no one is really serious about it. Imagine if someone said last year that the US and Israel would attack Iran, and Iran would block the Strait of Hormuz for at least 6 months, during which time Iran would attack regional energy infrastructure, and after the war continued for 6 months, the conflict would spread to Saudi Arabia — the Houthis in Yemen would attack Saudi refineries, fire on Saudi oil tankers, and occupy key islands and ports near the Strait of Mande to block another key gateway and stop Saudi oil exports, and Iran's pro-forces from Iraq would attack Saudi Arabia's key east-west oil pipeline to force Saudi Arabia Close the pipeline, in which case most would expect oil prices to soar above $200/bbl. However, Brent crude oil futures were around $107 per barrel as of press time.

Why was Saudi Arabia attacked?

Since the US and Israel launched an attack on Iran at the end of February, the US had anticipated that the war would end as quickly as it did with Venezuela through regime change. But that's not the case. Iran reintegrated after the initial beheading and turned into an economic war — the purpose of blocking the Strait of Hormuz was to push up oil prices and cause a major impact on global inflation, thus forcing the US to end the war without reaching its main goal — a nuclear deal.

The US initially tried to win through military combat, then turned to economic warfare — by imposing a naval blockade and now level-2 sanctions on all countries that helped Iran — to crush Iran's economy and force Iran to surrender.

Saudi Arabia is one of the world's largest oil producers, so Iran is motivated to disrupt Saudi oil production and exports — triggering a sharp rise in oil prices. After shipping restrictions were imposed in the Strait of Hormuz, Saudi Arabia has diverted some of its oil exports from the Strait of Hormuz to the Red Sea via east-west oil pipelines. As a result, Yemen's Houthis have been attacking Saudi oil tankers in the Red Sea and are now trying to block the Mander Strait. Similarly, pro-Iranian forces from Iraq also attacked east-west oil pipelines with drones.

Therefore, the reason Saudi Arabia was attacked was to trigger a sharp rise in oil prices and force the US to end the war prematurely. Saudi Arabia's Ministry of Energy issued a statement on September 11 saying that on the morning of the 10th, the Riyadh section and the Medina section of the country's east-west oil pipeline were attacked several times, and preventive measures have now been taken to close the pipeline.

The East-West pipeline is a key alternative route for Saudi oil exports to bypass the Strait of Hormuz. The Saudi east-west oil pipeline was built in the 1980s. The total length is more than 1,200 kilometers, from the Persian Gulf oil-producing region in eastern Saudi Arabia to Yanbu Port on the Red Sea coast in the west. After the Strait of Hormuz was affected by war and shipping was blocked this year, Saudi Arabia quickly switched to exporting oil from the Red Sea through this oil pipeline. According to reports, after the US-Israel-Iran conflict broke out, the average daily transportation volume of the East-West oil pipeline rapidly increased from about 3 million barrels per day until now to 7 million barrels per day.

Traders and sources said that Saudi Arabia's east-west oil pipeline was interrupted. If transportation cannot be resumed within a few days, the global oil supply may lose 4%. Saudi Arabia's storage at Yanbu Port is only enough to maintain exports for 5 to 7 days, and a small amount is stored in Egypt.

The tightening situation in the Red Sea will undoubtedly have a new impact on the global energy market. Ben Cahill, a senior researcher at the US Atlantic Council Global Energy Center, pointed out that the Red Sea waterway has always been critical. In the past six months, one of the major guarantees of energy security is that risk zones can be circumvented through Saudi Arabia's East-West oil pipeline and another high-capacity alternative pipeline from the UAE. If the east-west oil pipeline is closed for a long time, it will present a huge challenge, because this pipeline is currently the most important pipeline to bypass the Strait of Hormuz.

Is the rise in oil prices still being contained?

So why hasn't the price of oil soared above $200? In the first phase of the war, oil supply disruptions caused by the Iran war were largely suppressed by the following factors, including: global release of strategic oil reserves; reduction in Chinese oil imports; shadow tankers transporting oil; more oil exports being diverted through pipelines and alternative routes; and the US Navy escorting more tankers on the Oman side.

After six months of war, global oil stocks are nearing critical levels, so this buffer is disappearing. China has recently been increasing oil imports to refine more crude oil into derivatives and rebuild inventories. Furthermore, the US has been attacking Iran's shadow tankers, while Iran continues to attack oil tankers in the Gulf region. Iran has also begun directly targeting US Navy ships that provide support for oil tankers passing through the Oman side. As a result, all the factors that previously suppressed the rise in oil prices now seem to be reversed. Therefore, considering the escalation of the situation brought about by the attack on Saudi Arabia, oil prices are bound to soar further.

How will Saudi Arabia respond?

Saudi Arabia has a strong army, and the ground forces may have as many as 350,000 people, but Saudi Arabia understands that this is a war against Iran's proxies, so it is also a war against Iran. In fact, this is a US-Iran war, and Saudi Arabia is unwilling to get involved — so the Saudi military is unlikely to respond.

The petrodollar system is based on an agreement between the US and Saudi Arabia: Saudi Arabia exclusively sells oil in US dollars, while the US guarantees military protection for Saudi Arabia. As a result, Saudi Arabia expects the US to protect it. Saudi rulers have apparently asked President Trump to respond, but Trump is unwilling to extend the war to Yemen and Iraq.

This is basically the crux — no one really wants this war, but without the Iran nuclear deal, this war cannot end. Therefore, Saudi Arabia can only wait until the US and Iran reach a sustainable peace agreement.

However, Saudi Arabia is preparing for a regional war without the help of the US. It has just signed joint defense agreements with Turkey and Pakistan, two nuclear powers. Notably, the recent attacks did not trigger the agreement.

impact

The buffers that contained the rise in oil prices in the early stages of the Middle East war are disappearing. If the war continues, it will be more difficult to stop the sharp rise in oil prices and the shock of global inflation — and this is Iran's strategy to force the US to end the war prematurely without a nuclear deal. But without a nuclear deal, America will not end the war. As a result, the war is likely to escalate, and the recent attack on Saudi Arabia heralds an expansion of regional wars.

Saudi Arabia's east-west oil pipeline was attacked and diplomatic negotiations between Iran and the Gulf countries were postponed. The two major shocks fermented simultaneously, causing the global energy market to face the most severe supply pressure in decades. Analysts at investment bank Bernstein warned that the price of Brent crude oil may further soar to $120 to $150 per barrel from the current level. The bank characterized the current market as a “chronic shortage of supply” and indicated that the previous 2026 Brent crude oil price forecast of $90 per barrel had been “surpassed by reality.”

Bernstein's warning clearly shows the seriousness of the current situation — the three pressures of blocking the Strait of Hormuz, disrupted Red Sea shipping, and the closure of Saudi East-West pipelines are simultaneously compounded, and the global oil supply system is under unprecedented pressure.

This has had a huge impact on financial markets. If oil prices soar to 150-200 US dollars/barrel, there will be an impact similar to the global inflation shock of 1974, which means that central banks around the world will have to be more aggressive in raising short-term interest rates, which is likely to trigger a global recession. In fact, in the face of supply disruptions, demand disruption is the only way to lower oil prices, and the International Energy Agency (IEA) estimates that oil demand will decline in 2026.

Since the situation eased in April, stock market investors have been ignoring the war in Iran, and the S&P 500 index hit a new high, driven by AI themes. However, central banks around the world have begun to shift to raising interest rates, and the market expects the Federal Reserve to raise interest rates on Wednesday as well. WTI crude oil is already above $100 per barrel, and the rise in 10-year US bond yields is also indirectly related to the Middle East war. As a result, the stock market is prone to a sharp retracement.

The macroeconomic situation is deteriorating and will continue to deteriorate as long as the war continues. US President Trump believes the war may continue until the midterm elections, while others think it may continue until the end of Trump's term. According to analysts, the war will continue until there is an acceptable solution to the Iranian nuclear issue.