State-run oil giant Saudi Aramco has informed European refiners that they will receive no crude oil under long-term contracts for the upcoming month. This abrupt halt in October allocations comes in the wake of a devastating drone attack on its primary export bypass pipeline, escalating a global supply squeeze.
East-West Pipeline Crippled by Drone Strike
The decision to cut off European term allocations directly follows targeted strikes by Iran-backed militias on September 10, which severely damaged the 1,200-kilometer East-West pipeline. This vital arterial line, capable of transporting up to 7 million barrels per day across the Arabian Peninsula to the Red Sea port of Yanbu, serves as Saudi Arabia's crucial mechanism to circumvent transit disruptions and ship attacks through the Strait of Hormuz.
Key pumping stations along the pipeline have been sidelined for emergency repairs, which are estimated to take up to six weeks. This significant damage has severely restricted Aramco's export routing capabilities, forcing the company to implement aggressive allocation strategies.
Global Repercussions and Market Volatility
The total freeze on European supplies marks a stringent tightening of Aramco's distribution, as it prioritizes domestic processing and manages severe logistical bottlenecks. European refiners, who collectively imported approximately 577,000 barrels per day of Saudi crude earlier this summer, are now compelled to seek alternative spot barrels from regions such as West Africa, the Mediterranean, and the US Gulf Coast.
This sudden cut-off to Europe mirrors similar emergency curtailments imposed on Asian buyers earlier in the week. Aramco indefinitely suspended term crude deliveries to Indian refiners, severing a supply line that accounts for nearly 9 percent of India’s total crude import basket. While domestic Indian processors have near-term coverage for October, the simultaneous loss of contractual Saudi barrels in both Europe and Asia has profoundly rattled global oil markets.
Brent crude benchmark prices surged past $108 a barrel before stabilizing above $103, driven higher by mounting procurement costs and elevated tanker freight rates. To maintain limited liquidity, Aramco has redirected small volumes into opportunistic spot market auctions via ship-to-ship transfers in the Gulf of Oman. However, market participants emphasize that these spot market tenders offer none of the price stability or operational predictability associated with long-term contracts, adding further uncertainty to an already volatile market.