Oil prices fell on Tuesday as markets weighed Saudi Arabia’s efforts to restore exports through the critical East-West Pipeline, while signs of a potential diplomatic resolution to the Strait of Hormuz crisis continued to grow. Brent crude dropped as much as 2.9% before paring losses to trade near $98 per barrel.
According to sources cited by Bloomberg, Saudi Arabia is in the early stages of restarting the East-West Pipeline, which was shut down following drone attacks earlier this month. Riyadh is aiming to restore pipeline exports within the week, according to one of the sources.
The Strait of Hormuz: The pipeline that bypasses it
Before it was taken offline, the East-West Pipeline served as one of the most important alternative routes in global oil markets during periods of crisis.
The infrastructure allows Saudi Arabia to transport oil to the Red Sea, bypassing the Strait of Hormuz — the world’s most critical energy chokepoint.
Oil traders noted that there are already signs of tankers arriving at the port of Yanbu on the Red Sea, from which pipeline oil is exported, with a capacity of approximately 7 million barrels per day.
Risk premium fades from markets
Oil has surged more than 60% this year, as the Middle East conflict has disrupted flows through Hormuz, the world’s most vital energy hub.
Gains were even steeper in fuel markets, as Ukrainian strikes on Russian refineries further reduced available supplies.
The potential restart of the East-West Pipeline is expected to provide relief to a market that has faced significant supply constraints over recent weeks.
“The restart of the East-West Pipeline is leading to some additional reduction in the geopolitical risk premium,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank.
Saudi Arabia rerouted exports through Hormuz after pipeline shutdown
Following the pipeline closure, Saudi Arabia was forced to reroute its exports through the Persian Gulf and the Strait of Hormuz.
Satellite data showed increased loadings from the major Ras Tanura terminal, with seven vessels appearing to load oil at one point over the weekend.
However, attacks by Iran-aligned Houthi forces from Yemen on Saudi infrastructure continue, raising security risks for maritime shipping in the region.
US and Iran: A diplomatic window opens over the Strait
Meanwhile, markets are closely monitoring signs of potential diplomatic movement between the United States and Iran regarding the management of the Hormuz crisis.
Oil prices fell earlier after reports that an Iranian official told Reuters that Tehran could reopen the Strait within seven days, provided the US lifts its blockade of Iranian ports.
The proposal, according to the same reports, could serve as a basis for talks mediated through countries participating in the UN General Assembly.
Iran’s Revolutionary Guards also indicated that negotiations should take place if they serve the country’s national interest.
Six months of turmoil in energy markets
Efforts to end a conflict that has rattled energy markets for more than six months have so far failed to produce results.
A temporary ceasefire agreement implemented over the summer lasted only briefly, after which the US moved to blockade Iranian ports, significantly curtailing Tehran’s energy export revenues.
In response, Iran has carried out attacks on vessels transiting the Strait of Hormuz.
