Saudi Arabia Halts Crude Shipments to Europe After Pipeline Attack

Saudi Aramco has told at least two European oil refining customers that they will receive no crude oil shipments next month, after a drone attack knocked out the kingdom’s key East-West pipeline to the Red Sea.

People informed of the decision, who asked not to be identified because the information isn’t public, said the halt applies to all European buyers who normally receive Saudi crude under term contracts guaranteeing steady monthly supply. Those deliveries will not happen next month.

Europe draws about seven percent of its crude oil from Saudi Arabia. That’s not the bulk of the continent’s supply, but it’s enough to squeeze prices further for consumers already paying far more than Americans do at the pump.

Pipeline attack blamed on Iranian-backed militias

Saudi Arabia shut down its East-West pipeline last week following a drone strike suspected to have been carried out by Iranian-backed militias operating in Iraq. European refineries typically lift Saudi crude from Egypt’s Mediterranean port of Sidi Kerir, which connects to the Red Sea via that same pipeline.

There is a timeline for repair. A person familiar with the matter said the line is due to partially restart within days and be fully operational again within roughly six weeks, meaning Saudi shipments to Europe could resume before winter sets in in earnest — provided the pipeline isn’t hit again.

Panic buying already underway

The shutdown has triggered scrambling among Aramco’s customers to lock down alternative supplies. Poland’s Orlen SA has issued more than ten tenders since Friday alone in an effort to secure crude elsewhere.

Europeans already pay steeply more than Americans for gasoline and diesel. Adjusted for currency and volume, the UK and France are paying roughly $8.36 per gallon and Germany about $8.80, compared with a U.S. average of $5.38 as of this writing. Analysts expect this supply disruption to push those European prices higher still, with home heating oil likely to see a similar increase heading into colder months.

It remains unclear whether Europe’s other major crude suppliers can fully cover the gap left by Saudi Arabia. Those suppliers — the United States (14.6 percent), Kazakhstan (12.8 percent), Norway (12.8 percent) and Libya (9.1 percent) — have not been affected by the broader Middle East conflict, which is some reassurance for European buyers scrambling for alternatives.

As of this writing, American crude oil (USOIL) was trading at 97.90, with UK Brent (UKOIL) at 104.86.