From Hormuz to Saudi to US sanctions, world feels the oil heat

The seven-month-old war in West Asia has now engulfed Saudi Arabia, the world's largest oil exporter, adding to the pressure on global oil supplies. The Strait of Hormuz has been closed since February 28, while a drone attack on the East-West pipeline on September 10 closed the western route for Saudi crude exports. The distruptions sent Brent crude oil prices soaring to $109.4 per barrel; they are at $104.2 now.

The disruption to supplies could intensify further following the signing of the Lindsey O Graham Sanctioning Russia and Iran Act by President Trump. Trump stated at the UN that Iran has a choice between annihilation or a deal after the US Congressional elections. Within seven days, Iran conveyed that it prefers a deal.

The Strait of Hormuz, before its closure, carried 20% of global oil supplies, including 15 million barrels of crude oil and 5 million barrels of petroleum products. Saudi Arabia could continue to export 4 million barrels of crude oil through the East-West pipeline, while the UAE exported 1.5 million barrels through the Habshan-Fujairah pipeline, allowing both countries to partially circumvent Hormuz. They are operating shuttle services to bring their oil outside Hormuz, where it can be transferred ship-to-ship for onward transportation.


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The closure of the East-West pipeline could result in a minimum disruption of 13-14 million barrels per day of crude oil supply. Russia currently exports around 3.5 million barrels per day. If the Graham Act is invoked and the targeted countries acquiesce, the disruption in global oil supply could rise to 16-17 million barrels per day. There is no alternative source to fill this gap.

The disruption also extends to petroleum products and LNG, which is carried at -163 degrees and cannot be transferred on the high seas. The Indian government's statement that the Act will have implications "for not just the bilateral relationship but also the international energy market" is fully justified.

The US naval blockade of Iranian ports puts pressure on Tehran, but also affects America's Gulf allies by reinforcing Iran's determination to continue blocking the Strait of Hormuz. The impact is also being felt in the US, with petrol prices at the pump reaching $4.30 per gallon, above the comfort level of $4 per gallon, while diesel prices have risen to $6.75 per gallon, affecting the farming sector in an election year.

Invoking the Graham Act could hurt not only the economies of targeted countries but also US consumers, as higher international oil prices would translate into higher prices in the US. The price of WTI, the US benchmark, has already risen from $67.02 per barrel on February 27 to $92.41 now.

Meanwhile, Saudi-backed forces have taken a beating in Yemen, with the Houthis capturing Mocha port and occupying Perim Island in the Red Sea. They have also bombed Saudi Arabia's border towns and Riyadh.

President Trump has declined a Saudi request to get directly involved in combat operations. Support from the US, as well as the UK and France, remains limited to intelligence and logistics. Turkey and Pakistan have also not taken any concrete steps in support of the Saudis despite having signed the Mecca pact, which contains a collective security clause.

Pakistan last year also signed a bilateral Strategic Mutual Defence Agreement with Saudi Arabia. It had refused a Saudi request to intervene against the Houthis in 2015 and also received $8 billion of Saudi money recently..

While India is the second largest buyer of Russian crude oil, its purchases were made when there was no US ban. The policy of 'price cap' introduced by the Biden Administration allowed the purchase of Russian crude oil, but at a discount. The Trump Administration till quite recently, has given periodic licenses to purchase Russian crude. The Act targets India after it has stepped up purchases of American oil and gas. During April-December 2025, India imported $8.2 billion worth of Russian crude oil. The US has also emerged as the largest source of LNG imports in August this year.

The price of India's crude oil basket climbed from $70.61 on February 26, on the eve of war, to $123.67 per barrel now. The spot LNG prices have climbed by 150 % during this period.

The share of spot LNG in India's purchases has gone up since long-term supplies from Qatar stopped.

Oil prices will remain higher for longer, unless a political solution is found. The US and Iran need to return to the June 17 Memorandum. The US need not insist upon zero enrichment; NPT allows 3.67% enrichment to non-nuclear weapon states. Iran has to show flexibility on free passage through Hormuz in return for lifting the US naval blockade, sanctions, and unfreezing of Iranian assets.

The writer is former Ambassador to Iran