Oil prices increased by over a percent on Tuesday, driven by heightened concerns regarding supply disruptions following attacks on Saudi Arabia’s energy infrastructure, which rendered the kingdom’s East-West pipeline inoperative. This development has raised new uncertainties about the effectiveness of measures aimed at mitigating shipping risks in the Gulf. On Monday, Houthi forces, supported by Iran, initiated new assaults on Saudi Arabia, coinciding with the postponement of scheduled talks between Gulf Arab states and Iran. The developments have heightened apprehensions regarding the potential escalation of the Middle East conflict, which could lead to disruptions in global oil supplies. Brent crude futures increased by $1.24, representing a rise of 1.18%, reaching $107 per barrel following a 1% gain in the preceding session. U.S. West Texas Intermediate futures increased by $1.29, representing a 1.24% rise, reaching $102.65 per barrel, subsequent to a 1.3% gain observed on Monday.

The Houthis launched an assault on the Khamis Mushait military airbase located in southern Saudi Arabia, utilising missiles and drones to target aircraft hangars, radar systems, runways, and ammunition depots. The attack was executed as a response to Saudi strikes in Yemen. It followed the assaults on Saudi Arabia on Friday, which Riyadh attributed to Iranian-backed militants in Iraq. Those attacks disrupted the country’s East-West pipeline, a crucial conduit that enables Saudi Arabia to circumvent the blockaded Strait of Hormuz when exporting oil. As reported, vessel traffic through the Strait of Hormuz declined to fewer than 10 transits per day over the weekend, in contrast to a 10-day average of 14. The decline has raised concerns over the strategic waterway, which typically carried approximately one-fifth of global oil supplies prior to the onset of the U.S.-Israeli war on Iran that began on February 28. The recent escalation is noteworthy given that Saudi Arabia holds the position of the world’s largest oil exporter.

The country has been utilising the pipeline to redirect approximately 4 million barrels per day, which accounts for around 4% of global supply, to the port of Yanbu on the Red Sea. The potential for additional disruptions has progressively tilted the risks for oil prices toward the upside. Daan Struyven indicated that recent attacks suggest shipping disruptions could proliferate and intensify. Goldman Sachs has delineated a scenario in which oil prices could ascend to $120 a barrel should assaults on Middle Eastern vessels escalate. If exports return to normal, the bank anticipates that oil prices will trend back toward $80 a barrel. Struyven indicated that shipping risks have emerged as a significant factor influencing oil prices. Struyven indicated that Goldman Sachs anticipates “meaningful upside to crude oil prices” and also projects an increase in natural gas and refined product prices. He stated that supply shocks in petrol and fuels are more significant than those in the crude market.

The length of the disruption will be pivotal for oil prices. JPMorgan posits that every extra month of disruption may contribute approximately $7 to $8 per barrel to Brent prices. If the disruption persists for three months, the bank anticipates average monthly Brent prices to approach approximately $114 per barrel. Citi has increased its average Brent crude price forecast for the third quarter to $86 a barrel from $80, attributing this adjustment to a longer-than-anticipated timeline for the reopening of the Strait of Hormuz. Analysts have raised their short-term Brent forecast to $95 a barrel, cautioning that prices may increase further should the conflict in the Middle East intensify. It was indicated that a prolonged standoff characterised by calibrated military action between the US and Iran seems to be the most probable scenario, potentially postponing the full return of Middle Eastern supply.