Riyadh: Saudi Arabia has temporarily shut its East West oil pipeline after a drone attack, adding to growing concerns about global energy supplies as oil prices remain above $100 a barrel and tensions continue around key shipping routes.
Saudi authorities said drones attacked the pipeline in the Riyadh and Medina regions. They said the drones originated from Iraq. The attack caused injuries and damage, but Saudi Arabia has not publicly identified those responsible for launching the drones.
The pipeline runs for about 1,200 kilometres across Saudi Arabia and provides an alternative route for transporting oil without relying on the Strait of Hormuz. It had been carrying an estimated 4 million to 5 million barrels of oil a day in recent months.
Saudi Arabia said it would not immediately retaliate following a request from the Iraqi government, giving Baghdad an opportunity to take measures to prevent further attacks. Riyadh said it reserved the right to take necessary action to protect its territory and critical infrastructure.
Iraq has also taken action. The government dismissed the commander of military operations in Maysan province after authorities determined that the attack on Saudi Arabia was launched from a site in the province.
The pipeline shutdown comes as the regional energy crisis is already affecting global oil supplies.
Iran aligned Houthi forces in Yemen have also expanded their position around the southern entrance to the Red Sea. The Houthis have seized Perim Island, also known as Mayun, in the Bab el Mandeb Strait, according to Yemeni government sources.
The Strait of Hormuz and the Bab el Mandeb Strait are major routes for international energy shipments and other trade. Continued disruption in both areas could increase pressure on oil supplies and global shipping.
Oil prices eased on Friday after reaching a four month high, providing some relief to financial markets. Brent crude reached $109.97 a barrel before falling back and later settled at about $104.61. West Texas Intermediate crude settled at about $100.05.
Wall Street also recovered on Friday after a difficult week. The Dow Jones Industrial Average rose 1.13 percent, the S&P 500 gained 1.03 percent and the Nasdaq Composite increased 1.15 percent. Despite the gains, all three major US indexes recorded weekly losses.
US inflation is adding to concerns over the economic impact of higher energy prices.
Consumer prices in the United States rose 0.4 percent in August from the previous month, after increasing 0.1 percent in July. The annual inflation rate remained at 3.4 percent. Core consumer prices, which exclude food and energy, increased 0.3 percent.
The figures have strengthened market expectations that the Federal Reserve could raise interest rates at its September 15 and 16 meeting. However, the decision has not been announced.
The yield on the US 10 year Treasury note also moved close to 5 percent, reflecting continued pressure in bond markets.
The International Energy Agency has warned that the disruption to oil supplies is significant. More than 10 million barrels of oil production per day in the Gulf region remained shut in during August because of security risks.
The latest developments have increased the risk that higher energy prices could keep inflation elevated and put further pressure on economic growth.
Financial markets have gained some relief from the fall in oil prices and Friday's rise in US stocks. However, the Saudi pipeline attack, the continuing restrictions around the Strait of Hormuz and the growing risks around the Bab el Mandeb Strait have left investors facing a highly uncertain global energy outlook.
Markets are now watching closely for further developments involving Saudi oil infrastructure, Iraq, Iran aligned forces, the major shipping routes and the US Federal Reserve.