Saudi Arabia, through its national oil corporation, Aramco, has warned that there could be “catastrophic consequences” for global oil markets if the ongoing US-Israeli conflict with Iran continues to obstruct shipping in the Strait of Hormuz.
The largest oil exporter in the world anticipates being able to provide approximately 70% of its typical crude production despite the blockade on this crucial trade route.
However, the Chief Executive Officer, CEO, Amin Nasser, noted that there would still be “drastic” repercussions for the global economy if the disruption persists.
Since the US airstrikes on Iran 11 days ago, oil shipments from the Middle East have been prevented from transiting through the narrow waterway, resulting in the loss of around 20 million barrels of oil from the global market each day.
In spite of the warning, oil prices experienced a decline on Tuesday after Donald Trump indicated that the conflict could conclude “very soon.”
The cost of a barrel of Brent crude, which serves as the international benchmark, fell by 14% on Tuesday evening, settling at approximately $85. Although this figure remains significantly higher than the $72 per barrel prior to the US-Israel strikes on Iran, it is lower than the peak of $119 reached earlier this week, marking the highest price since 2022, when Russia invaded Ukraine, which heightened concerns for the global economy.
Markets on both sides of the Atlantic also experienced a partial relief rally. The FTSE 100 in London increased by 1.6% on Tuesday, Germany’s DAX rose by 2.4%, and France’s CAC climbed by 1.8%. US markets were also showing gains in early afternoon trading on Wall Street.
“While we have encountered disruptions in the past, this one is by far the most significant crisis that the region’s oil and gas industry has faced,” Nasser said.
Due to the disruption, Aramco has been unable to transport crude cargoes out of the Gulf; however, it is optimistic about fulfilling customer demands by utilizing the east-west pipeline to the Red Sea port of Yanbu, from which shipments can be made to buyers.
The company intends to enhance shipments through the pipeline to achieve its maximum capacity of 7 million barrels per day in the near future.
