Gulf oil remains competitive despite East-West pipeline costs

• Crude flows to Yanbu reportedly close
• Brent falls below $100-a-barrel mark
• Trump met Iranian officials in New York

Gulf oil exporters face a rising price tag to fix and secure energy infrastructure as the Iran conflict continues, but their overall production costs remain globally competitive, analysts have said.

Saudi Arabia is reportedly close to resuming crude flows through its East-West pipeline after three pumping stations were damaged in attacks two weeks ago. But this and other parts of the Gulf energy network remain vulnerable to future strikes if the conflict continues.

“With redundancy and repairs, Saudi, and Gulf, cost of production is going higher,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy in New York. “This adds to operating expenses across the board, but Gulf production remains some of the most low-cost in the industry.”

State-owned Aramco did not say when the East-West pipeline, running from oil fields in eastern Saudi Arabia to Yanbu on the Red Sea, would reopen, or whether it would do so at its 7 million barrel per day (bpd) capacity.

The Saudi energy conglomerate had been pumping 4 million bpd of exports through the pipeline in recent months to replace volumes unable to exit the Strait of Hormuz.

Sources told Reuters the pipeline restarted some operations Tuesday, will rise to 40 percent capacity within two days, but will still take six to eight weeks to reach its full load.

”Two loads have occurred since yesterday on Bahri VLCCs (Niban and Farhah) [at Yanbu on the Red Sea coast]. These are the first since 11 September. However, this doesn’t mean the pipeline is back online; exports are likely coming from the storage tanks,” Matthew Wright, lead freight analyst at maritime analysts Kpler told AGBI.

Neil Quilliam, a Middle East specialist at Chatham House and an AGBI columnist, said: “I’ve just spoken to a couple of people who say the reports are broadly right, although the timeline may be slightly ahead of schedule. They think the pipeline is more likely to reopen towards the end of the week.”

The Saudi Embassy in Washington did not respond to a request for comment.

Oil prices fell on the news, and reports that US and Iranian officials met in New York on the sidelines of the UN General Assembly as they weigh returning to diplomatic talks.

Brent crude futures fell below the psychological $100-a-barrel mark, trading 0.48 percent lower at $99.77 a barrel as of 03:10 GMT on Wednesday, extending its decline to a sixth consecutive session. West Texas Intermediate futures also slipped 0.86 percent to $89.74 per barrel.

The pipeline will need to carry at least 2.8 million bpd to meet domestic refining and power needs and still leave one million bpd for exports out of Yanbu, according to Bachar El-Halabi, a non-resident fellow at the Middle East Council on Global Affairs.

“The main question is not whether Saudi Arabia’s East-West pipeline restarts,” El-Halabi wrote on social platform X. “It is at what capacity, and whether the elevated risks around the system have actually been mitigated.”

Restoring damaged pipelines is typically a straightforward process, whereas fixing pumping or compression stations can be more complex, according to Jim Krane, an energy research fellow at Rice University’s Baker Institute in Houston, who cited past experiences with pipeline attacks in Iraq and Colombia.

Repairs and additional security needs will compound Saudi Arabia’s burden from the war, Krane said.

“But the cost of Saudi production is around $10 under normal circumstances,” he noted. “Even if you add a couple of dollars, it is still going to be profitable.”

The Saudi energy ministry on Tuesday addressed the “sharp rise” in the cost of transporting crude, pointing to factors like Iranian attacks on tankers, disruption to navigation through Hormuz, significantly higher prices for insurance, and fewer vessels available in the region.

A statement published by the Saudi Press Agency rejected comments from Iraq’s oil minister that the Saudi purchase of 25 tankers had spiked Iraqi transportation costs.

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American officials are weighing a $10 billion joint investment fund with GCC states — and committing $5 billion of US money — to restore and expand energy infrastructure after it came under fire from Iran, according to the Financial Times.

During a meeting with GCC leaders on Tuesday afternoon, US President Donald Trump said Iranian strikes “have shown the need to shift Middle East energy infrastructure away from the Iranian checkpoints”.

The president threatened to “annihilate” the Islamic Republic during his earlier speech before the UN General Assembly, but he said he ultimately expects a deal with the Islamic Republic after the November midterm elections “because it doesn’t make sense for them not to”.

He later said US officials had a “very good” discussion with their Iranian counterparts in New York, which was confirmed by Iranian state television. Officials from Tehran previously said they could reopen Hormuz in a week if the US lifted its naval blockade there.

Only three vessels transited the Strait of Hormuz on Tuesday, down from four the day before, Reuters reported, citing preliminary Kpler data.

Meanwhile, Saudi Arabia’s benchmark index closed flat on Tuesday.

Dubai’s main index rose 0.6 percent, while Abu Dhabi jumped 1.3 percent. Qatar, Kuwait and Bahrain slipped, while Oman gained marginally.