Oil Surges Above $108 as Saudi Pipeline Attack Deepens Global Supply Fears

Oil prices surged Monday as a fresh wave of attacks across the Middle East raised fears that an already-constrained global energy market could face even deeper supply disruptions. Brent crude climbed above $108 a barrel, reaching its highest level since May, as traders assessed the impact of attacks on Saudi infrastructure and growing threats around critical shipping routes.

The latest move higher came after Saudi Arabia shut its East-West crude pipeline following a drone attack. The pipeline is a crucial alternative to the Strait of Hormuz, transporting oil from the kingdom’s eastern fields toward the Red Sea port of Yanbu. Its shutdown has put as much as 4% of global oil supply at risk if the disruption persists.

The pipeline normally provides Saudi Arabia with a way to bypass the Strait of Hormuz, which has already experienced severe disruptions during the ongoing regional conflict. With that alternative route now offline, traders are increasingly concerned that Saudi Arabia has fewer options for moving crude to international markets.

Saudi Arabia had been moving roughly 4 million barrels of crude per day through the East-West system, according to reporting cited by Reuters. Storage at Yanbu is estimated to cover only several days of exports, increasing pressure on the kingdom to restore the pipeline or find alternative routes.

The situation is being compounded by developments around Yemen. Iran-backed Houthi forces launched missiles and drones toward Saudi Arabia, while the group has expanded its presence near the Bab el-Mandeb Strait. The strategic waterway connects the Red Sea with the Gulf of Aden and Indian Ocean, making it another critical passage for global energy and commercial shipping.

Meanwhile, traffic through the Strait of Hormuz remains dramatically below normal levels. Before the conflict, the waterway handled roughly 125 vessel transits per day and carried about 20% of global crude oil and liquefied natural gas supplies. Recent weekend traffic was only a fraction of that level, underscoring how severely the conflict has disrupted regional energy logistics.

The consequences are already spreading beyond crude markets. Higher oil prices raise transportation and manufacturing costs, while expensive diesel and gasoline can feed directly into consumer inflation. U.S. diesel prices have already reached record levels, creating another potential challenge for businesses and households.

Investors are now watching whether the oil shock begins to weigh on corporate earnings. Companies with large transportation, logistics, manufacturing and energy-intensive operations could face margin pressure if fuel costs remain elevated. At the same time, persistent inflation could make it harder for central banks to ease monetary policy.

The Federal Reserve is facing the situation at a particularly sensitive moment. Markets are anticipating a potential interest-rate increase this week as inflation concerns persist, and the latest jump in energy prices could complicate policymakers’ efforts to bring inflation back toward their target.

For investors, the biggest question is whether the latest oil spike becomes temporary or develops into a prolonged energy shock. A quick reopening of Saudi Arabia’s pipeline and stabilization of regional shipping could bring prices back down, but continued attacks on infrastructure or maritime routes could push crude considerably higher. With Brent already above $108, the oil market is once again becoming a central risk for the global economy and financial markets.