Global oil prices climbed more than two per cent on Monday as renewed attacks on Saudi Arabian infrastructure and vessels around the Strait of Hormuz intensified concerns that the Middle East conflict could trigger a prolonged disruption to world energy supplies.
Brent crude futures rose about 2.02 per cent to $106.72 per barrel, while US West Texas Intermediate gained roughly 2.1 per cent to $102.15 in early trading.
The latest increase follows an eight per cent surge last week, when crude returned above $100 per barrel amid mounting disruption to Gulf exports.
The immediate concern is Saudi Arabia’s East-West pipeline, which was temporarily shut following a drone attack.
Strategic Pipeline Comes Under Attack
The East-West pipeline has become particularly important because it allows Saudi Arabia to move crude from its eastern producing regions to the Red Sea port of Yanbu without relying on the Strait of Hormuz.
With normal movement through Hormuz already severely disrupted, the pipeline has effectively become an alternative artery for Saudi exports.
Its shutdown could threaten flows equivalent to as much as four per cent of global oil supply, depending on how long operations remain affected.
Industry sources told Reuters that Yanbu currently has sufficient inventories to maintain exports for only around five to seven days if the pipeline remains unavailable.
That creates a potentially important deadline for global markets.
Shipping Faces Another Threat
The security situation around Hormuz is also deteriorating.
A vessel travelling through the strait was struck by a projectile, causing a fire and forcing its crew to evacuate.
Iran said an Iranian commercial vessel was also struck off its coast, leaving one person dead and four crew members wounded.
Meanwhile, Iran-aligned Houthi forces in Yemen have advanced onto the strategic island of Perim, strengthening their position around the Bab el-Mandeb Strait.
That means instability is affecting two of the world’s most important energy-shipping chokepoints simultaneously.
Hormuz connects Gulf oil producers with international markets, while Bab el-Mandeb links the Red Sea to the Gulf of Aden and the wider Indian Ocean.
Oil Shock Could Feed Inflation
For the global economy, sustained crude prices above $100 present a significant inflation risk.
Higher oil prices increase the cost of petrol, diesel, aviation fuel and shipping.
Those increases eventually work their way into food prices, manufacturing costs and transportation expenses.
Oil-importing economies are particularly vulnerable.
Central banks attempting to reduce interest rates could also find their plans complicated if higher energy costs generate another wave of inflation.
The geopolitical crisis is therefore becoming a monetary-policy problem as well as an energy-security problem.
The immediate question for markets is how quickly Saudi Arabia can restore the East-West pipeline.
If the disruption persists while Hormuz and Bab el-Mandeb remain unstable, the world could be confronting one of the most serious simultaneous threats to energy transportation in years.
