Deepening oil market turmoil

Deepening oil market turmoil

Strain is growing on the global energy markets. While the energy world already faces a significant reduction in oil flows through the Strait of Hormuz, recent disruptions to shipments via Bab al-Mandab in the Red Sea are adding to the markets’ woes. Approximately 12 to 15 per cent of global maritime trade worth more than $1 trillion transits through the waterway, extending from the Suez Canal in the north to the Bab el-Mandeb Strait in the south, each year. All of that is now under threat. Faced with this double whammy, crude supplies from the Middle East are under even more pressure. A major new risk has emerged on this Red Sea and Bab el-Mandeb corridor. Iran-supported Houthi forces seized Yemen’s port of Mocha, increasing concerns that Gulf and Red Sea shipping routes could be constrained simultaneously. Due to the blockage of the Strait of Hormuz, Saudi Arabia, the world’s top crude oil exporter, was using the Bab al-Mandeb to export most of its crude from its west coast shipping terminal on the Red Sea coast in Yanbu. This strait links Asia to Europe via the Red Sea and Suez Canal. We are faced with the spectre of considerably higher petrol prices in the coming weeks Houthi attacks on Saudi targets and the capture of Mocha port by Houthi militias have added to the pressure on Saudi exports. Saudi Arabia’s crude supply fell 2.3 million barrels per day (bpd) on the month to 6m bpd in August, the lowest level in more than three decades, the International Energy Agency said on Friday. Saudi Arabia also reported to the Organisation of the Petroleum Exporting Countries (Opec) that its crude output fell last month to its lowest level since 1990. The drop follows the targeting, by groups linked to Yemen’s Houthis, of ships transiting the Bab el-Mandeb and Saudi Arabia’s Jazan refinery and shipping near Yanbu, the International Energy Agency (IEA) said in a report. At the same time, the Iran-backed militias in Iraq used drones to target Saudi Arabia’s Abqaiq oil processing site. Last Friday, Saudi Arabia announced it would shut down its crucial East-West crude oil pipeline as a precautionary measure after multiple attacks. The pipeline was targeted in the Riyadh and Madinah regions on Thursday morning, the Saudi oil ministry said. Ever since the beginning of the war in Iran and the resultant blockage of the Strait of Hormuz, the Saudis have relied heavily on the East-West pipeline to bypass the strait. Riyadh has redirected millions of barrels per day through the pipeline to its Red Sea port of Yanbu for shipments. As per an Aramco report earlier, some 7m barrels of crude oil were routed from oil fields in the East of the Kingdom to Yanbu port in the West. Of that, about 5m barrels of crude oil were exported to customers. This alternative route had helped manage Saudi crude exports at a considerable level despite the Hormuz closure. That is now under increasing threat. Markets are reacting. At close on Friday, the crude oil WTI Futures finished down at approximately $100.05 per barrel, and Brent crude settled near $104.23 to $104.85. Even this was a retreat from the multi-month highs registered late Thursday afternoon, when oil landed just short of $109 a barrel, some $8 higher over Wednesday’s close, as markets felt the intractability of the US-Israel war with Iran and the widening war theatre in the Middle East. The reversal that oil markets registered Friday afternoon was only after reports that Middle Eastern foreign ministers were trying to negotiate a temporary arrangement with Iran aimed at managing tanker traffic through the Strait of Hormuz. UBS energy analyst Giovanni Staunovo told Reuters the possibility of renewed talks was weighing on prices. Markets are tight. Already, Hormuz vessel traffic was running well below normal. Vessels transiting through Hormuz fell to seven on Thursday from 11 on Wednesday, compared with a recent 10-day average of 15. Before the advent of war on February 28, the strait was handling about 125 commodity vessels and one-fifth of global daily oil and liquefied natural gas supplies. Houthi strikes on Saudi Arabia’s oil infrastructure have alerted oil markets to the possibility of even less Middle Eastern supply than before, with potential damage to the East-West pipeline jeopardising 3-4m bpd of Saudi crude exports. As a result, Saudi crude oil exports have gone down. Saudi Arabia told the Opec Secretariat that it produced 6.24m bpd in August. The International Energy Agency is now warning that normal oil flow from the Middle East may not return until 2027, with global oil supply expected to fall substantially more this year than previously forecast. Market sentiment is turning bullish. Brent crude oil prices could top $120 per barrel by the end of the year if fighting in the Middle East continues, warned RBC Capital Markets’ Helima Croft while talking to Reuters. Banks including Goldman Sachs, Bank of America, HSBC and Commerzbank raised their Brent price forecasts last week, as persistent disruptions to Middle East shipping tightened oil markets and drove crude prices to multi-week highs. Commerzbank on Friday raised its year-end Brent oil price forecast to $85 per barrel from its previous forecast of $75/bbl. Last Monday, Goldman Sachs raised its Brent and West Texas Intermediate crude oil price forecasts by $5 a barrel for December 2026 and 2027, citing an expectation that shipping disruptions in the Middle East will persist into next year. The bank, in a note, said that Brent crude could climb above $120 a barrel if average Gulf oil output in 2027 remains 4m barrels per day below pre-war levels, compared with its base case assumption of a 0.5m bpd shortfall. “More disruptions could push it toward $120 per barrel, while vast energy infrastructure damage could drive prices to $150/barrel,” Bank of America said, adding that its central view assumes Hormuz flows gradually normalise and a prolonged conflict is avoided. All this is bad news for Pakistan. We are faced with the spectre of considerably higher petrol prices in the coming weeks. The writer is an energy analyst and has delivered talks at the Department of Energy in Washington and the International Energy Agency. X: @rhusainsyed Published in Dawn, The Business and Finance Weekly, September 14th, 2026