The route built to bypass the Strait of Hormuz has been attacked, another ship has been struck and regional talks with Iran have been postponed. The danger is no longer confined to one waterway: the alternatives themselves are becoming part of the battlefield.

The global oil crisis has entered a more dangerous phase.

For months, attention has been concentrated on the Strait of Hormuz, the narrow entrance to the Persian Gulf through which much of the world’s oil and gas would ordinarily pass.

Saudi Arabia appeared to possess an important alternative. Its 1,200-kilometre East–West pipeline could carry crude oil from production areas near the Gulf across the Arabian Peninsula to the Red Sea port of Yanbu.

Oil prevented from leaving through Hormuz could therefore be redirected westward, loaded onto tankers in the Red Sea and sent towards international markets.

That escape route has now been attacked.

Saudi Arabia’s Energy Ministry confirmed that the pipeline was subjected to multiple attacks in the Riyadh and Madinah regions and was shut down as a precaution. The Saudi Government later said drones used in the attacks had been launched from Iraq.

Technical teams are assessing the damage, but Saudi authorities have not publicly established how long the interruption will last. Independent estimates range from days to several weeks and should be treated cautiously until the extent of the damage becomes clearer.

The important fact is already known: a route designed to reduce dependence on Hormuz has itself been disabled.

Oil moves above US$107

Brent crude rose by more than two per cent as markets responded to the pipeline closure, further attacks on shipping and the postponement of regional negotiations.

It was trading above US$107 a barrel during early Monday trade, while West Texas Intermediate moved above US$102.

The increase is not simply a reaction to another exchange of fire. It reflects a reassessment of how much oil can reliably reach the market if the conflict continues.

Saudi Arabia is one of the world’s most important oil exporters. Its East–West pipeline became significantly more valuable when traffic through Hormuz was reduced by the war.

The pipeline was more than a piece of infrastructure. It was the market’s assurance that Saudi crude could still reach customers even if the Persian Gulf route became unsafe.

That assurance has been weakened.

Saudi Arabia may be able to maintain some exports using oil already stored at Yanbu and other facilities. The decisive question is whether the pipeline can be restarted before those accessible reserves are substantially depleted.

The Saudi Press Agency’s official statement confirms the shutdown but does not provide a timetable for reopening.

The alternatives are becoming targets

The strategic significance of the attack extends beyond the volume of oil temporarily interrupted.

The war has demonstrated that a pipeline bypassing a maritime chokepoint is not necessarily a secure supply route. It may avoid danger at sea only to become vulnerable to drones, missiles or sabotage on land.

Oil transported to the Red Sea must also pass through or near the Bab el-Mandeb, the narrow waterway between Yemen and the Horn of Africa.

Iran-aligned Houthi forces have intensified operations in Yemen, attacked Saudi targets and strengthened their position around this second vital shipping corridor.

This means pressure is developing at three points:

• traffic through the Strait of Hormuz remains severely restricted and dangerous;
• the Saudi pipeline constructed to bypass Hormuz has been shut after attacks;
• the Red Sea route at the western end of the pipeline is facing growing military risk.

There is no suggestion that all Middle Eastern oil exports have stopped. Other routes, storage facilities and suppliers remain available.

However, redundancy is being removed from the system.

An oil market can absorb the loss of one route when reliable alternatives exist. It becomes far more fragile when those alternatives are attacked at the same time.

Diplomacy has also stalled

The physical disruption has been accompanied by a diplomatic setback.

A proposed meeting involving Iran and Gulf Arab states was postponed as the participants sought greater regional consensus. Iran had been expected to discuss arrangements governing shipping through the Strait of Hormuz.

The meeting would not necessarily have produced an immediate reopening of the strait, but it represented a possible path towards reducing the danger to commercial traffic.

Its postponement removes that prospect, at least temporarily.

Another vessel was reportedly struck by a projectile while travelling through Hormuz on Sunday. A fire broke out and the crew was evacuated, according to the United Kingdom Maritime Trade Operations agency.

Iran also reported casualties aboard an Iranian commercial vessel struck off its coast.

The combination is particularly serious: infrastructure is being attacked, commercial ships remain exposed and the diplomatic process intended to reduce the danger is not proceeding as planned.

Markets have lost both a physical escape route and the immediate prospect of a diplomatic one.

What this means for Australia

Australia is geographically distant from the fighting but economically connected to it.

The country does not need to purchase every litre of fuel directly from the Middle East to be affected. Crude oil and refined fuels are traded in international markets. A serious disruption anywhere in the supply system changes prices everywhere.

Australia also imports much of the refined petroleum it consumes. Those cargoes may come from Asian refineries, but the refineries themselves purchase crude oil at international prices and compete for the same available supplies.

The Australian Government’s own Liquid Fuel Security Review recognises that the country’s increasing reliance on imports creates fuel-security risks.

The first Australian consequence is therefore likely to be price rather than physical shortage.

Higher crude prices, refinery margins, insurance costs and tanker charges eventually flow into wholesale and retail fuel prices. The movement is not always immediate because Australian suppliers hold inventories and purchase cargoes under different contracts.

However, a prolonged period above US$100 a barrel would become increasingly difficult to absorb.

The Australian dollar also matters. Oil is generally priced in US dollars, so a weaker Australian currency can magnify an international price increase before the fuel reaches a local terminal.

Diesel is the broader economic danger

Motorists will notice petrol signs first, but diesel may carry the larger economic consequence.

Diesel powers trucks, agricultural machinery, mining equipment, construction vehicles and many commercial fleets. It moves food, building materials, medicines and consumer goods across a continent in which road transport is often unavoidable.

An increase in diesel does not remain at the service station. It becomes part of the cost of almost everything that must be produced or transported.

Farmers face higher costs when operating machinery and moving produce. Freight businesses must either absorb those costs or pass them to customers. Construction projects become more expensive. Airlines and tourism operators are exposed through aviation fuel and transport expenses.

Regional and rural Australians are particularly vulnerable because they tend to travel greater distances and have fewer practical alternatives to private and commercial vehicles.

The eventual result can appear in supermarket prices, delivery charges, airfares and the cost of doing business.

A difficult problem for the Reserve Bank

The renewed oil surge comes shortly before the Reserve Bank of Australia’s next Monetary Policy Board meeting on September 28 and 29.

The RBA left the cash rate at 4.35 per cent in August. A sustained fuel shock would complicate its next decision.

Higher petrol and diesel prices can lift measured inflation directly. They can also spread into other prices through freight, production and distribution costs.

Yet increasing interest rates cannot repair a Saudi pipeline, reopen Hormuz or protect a tanker.

This is the uncomfortable nature of imported inflation. The Reserve Bank may be expected to respond to its consequences even though Australian monetary policy cannot remove its cause.

If the oil increase is brief, the RBA may look through some of the immediate volatility. If it persists and begins influencing wages, business pricing and inflation expectations, the Board’s task becomes more difficult.

Australian households could then be squeezed from two directions: higher costs at the bowser and continuing pressure from interest rates.

Not yet a fuel shortage

The latest developments do not establish that Australia is about to run out of fuel.

Shipping continues, alternative producers remain active and global markets can redirect cargoes in response to higher prices. Previous phases of the war have also demonstrated that suppliers can be more adaptable than expected.

Australians should therefore distinguish between three separate risks:

• higher fuel prices;
• delays or disruption affecting particular cargoes;
• a national physical shortage.

The first is already credible and increasingly visible. The second becomes more likely as routes lengthen and risks increase. The third would require a much more sustained breakdown in international supply and distribution.

There is no need for panic buying. That behaviour would create a local shortage even when the international supply system was still functioning.

The appropriate response is vigilance, accurate information and greater attention to Australia’s underlying fuel resilience.

A war of access

The latest events also reveal the true nature of the struggle over energy.

It is not necessary to destroy every oilfield, refinery or tanker to restrict supply. An attacker can instead deny safe access to the routes connecting them.

A minefield does not have to sink every ship to control a sea lane. A missile does not have to destroy an entire pipeline to stop operators from using it. A drone attack on a pumping station can interrupt a system extending for more than a thousand kilometres.

The weapon’s immediate explosion may be local. Its economic reach can be global.

The East–West pipeline was intended to make Saudi exports less dependent on Hormuz. Its closure shows that infrastructure can move a vulnerability without eliminating it.

The Times View

The world spent months asking whether Iran could close the Strait of Hormuz. The more important question may now be whether any bypass can remain secure while the war continues to spread.

The attack on Saudi Arabia’s East–West pipeline is a genuine change in the oil crisis. It threatens not only another source of supply but the assumption that alternative routes would protect the market from disruption in Hormuz.

Australia is unlikely to be the first country to lose access to fuel. It may nevertheless be among the many countries required to pay more for it.

This is how a distant war enters Australian life: not necessarily through an empty service station, but through the price of filling a car, operating a truck, harvesting a crop, constructing a home and delivering food to a supermarket.

The immediate explosion occurred in Saudi Arabia. The economic shock travels much further.