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Saudi Arabia’s state oil company has warned of “catastrophic consequences” for the world’s oil markets if the US-Israeli war with Iran continues to block shipping in the strait of Hormuz.
The world’s biggest oil exporter expects to be able to supply the market with about 70% of its usual crude output despite the stranglehold on the vital trade artery, but its chief executive warned that there would still be “drastic” consequences for the world economy if the disruption continued.
Oil shipments from the Middle East have been blocked from passing through the narrow waterway since the US strikes on Iran 11 days ago, erasing about 20m barrels of oil from the global market every day.
Despite the warning, oil prices fell on Tuesday after Donald Trump suggested the war could end “very soon”.
The price of a barrel of Brent crude, the international benchmark, was down 14% on Tuesday evening, at about $85. That was still well above the $72 a barrel before the US-Israel attacks on Iran, but lower than the peak of $119 this week, which was the highest price since 2022, when Russia invaded Ukraine, raising fears for the global economy.
Markets on both sides of the Atlantic also staged a partial relief rally. The FTSE 100 in London rose 1.6% on Tuesday, Germany’s DAX was up 2.4% and France’s CAC rose 1.8%. US markets were also trading higher in early afternoon trading on Wall Street.
Amin Nasser, the chief executive of Aramco, said: “While we have faced disruptions in the past, this one by far is the biggest crisis the region’s oil and gas industry has faced.”
Aramco has been unable to ship crude cargoes out of the Gulf owing to the disruption, but it hopes to meet customer demands by flowing crude through the east-west pipeline to the Red Sea port of Yanbu, from where it could be shipped to buyers.
The company plans to increase shipments through the pipeline to reach its full capacity of 7m barrels a day in the next couple of days, it said. About 2m barrels a day will be sent to Saudi Arabia’s refineries in the west of the country, leaving 5m barrels a day for the global crude market. This represents about 70% of the kingdom’s usual exports.
Typically, about 100 tankers a day pass through the narrow waterway lying south of Iran, but the number has dwindled to single digits after the Islamic Revolutionary Guard Corps threatened to “set ablaze” any vessel using the trade route, which carries a fifth of the world’s oil and liquefied natural gas.
Aramco said that it was now meeting most of its customers’ needs, partly by tapping crude held in storage outside the Gulf region. Nasser said these stores could not be used for “an extended period of time, but for the time being, we are capitalising on it”.
He said: “There would be catastrophic consequences for the world’s oil markets, and the longer the disruption goes on … the more drastic the consequences for the global economy.”
G7 leaders on Tuesday called on the world’s energy watchdog to prepare scenarios for the release of emergency oil stockpiles to help cool the markets after historic market price gains recorded in recent days. However, the bloc stopped short of giving the green light to a stock release, which has happened on only five occasions in the history of the market.
The International Energy Agency (IEA), which was set up after the Middle East oil crisis in the 1970s, requires its 32 member countries to hold at least 90 days of emergency crude supplies in reserve so they can be released to the market in the event of a supply shock.
In total, IEA members hold more than 1.2bn barrels of public oil reserves, and a further 600m barrels of industry stocks held under government obligation. In addition, China is estimated to have record-high levels of crude in storage. The world’s biggest energy importer, which is not a member of the IEA, may have up to 1.4bn barrels of oil in reserves.
The hope that global leaders may be inching towards an intervention to temper the oil market volatility helped prices ease from the four-year highs earlier this week. The price of Brent crude fell to just below $90 a barrel by the end of the trading day.
