The energy disruption now extends beyond the Strait of Hormuz. Reuters confirmed this week that three pumping stations on Saudi Arabia’s East-West Pipeline were damaged in the September 11 attack. This pipeline had been moving four million to five million barrels a day across the Arabian Peninsula, helping oil reach buyers without passing through the impaired strait. One of the main workarounds has now been damaged too.
The IEA reports that more than ten million barrels a day of Gulf production remained shut in during August, before this pipeline attack. Global inventories have fallen by 507 million barrels since February. Other producers, remaining shipping routes and inventory withdrawals are cushioning the disruption, but those buffers are not permanent.
WANA reported that Mohammad Bagher Zolghadr, an adviser to Iran’s Supreme Leader, said Iranian forces would not reopen Hormuz until Trump and Netanyahu were “removed from power.” My read is that the statement is an attempt to rile up the populations of the U.S. and Israel against their current leaders. Tie the economic pain to the people in charge and encourage their own citizens to demand a change. Whether that works is another question.
For households and businesses in the U.S., this reaches much further than the gas pump. Diesel moves food to the grocery store and powers farm equipment. Petroleum feedstocks go into packaging, plastics and polyester. These costs work their way into the things people buy every day. Unless you never get in a car or eat dinner, excluding food and energy from a measure of inflation does not make the problem disappear. My expectation: massively higher inflation in the things you actually need.