Even Middle East oil detours are blocked

The release of US strategic petroleum reserves alone is unlikely to stabilize international oil prices. The US has released a total of 40 million barrels of strategic petroleum reserves, which only replaced about 40 days of supply. With no additional supply sources to compensate for existing production losses, stabilizing oil prices is proving difficult.

Further releases of strategic petroleum reserves have also met their limits. Reporter Kim Sang-hoon stated, "After that, even the strategic petroleum reserves in the United States can no longer act as a buffer."

The Middle East has historically utilized east-west pipelines or alternative routes via the Red Sea in case the Strait of Hormuz is blocked.

Recently, the Houthi rebels in Yemen seized strategic strongholds in the Bab el-Mandeb Strait and attacked a Saudi oil pipeline, increasing the likelihood that even this alternative route could be blocked. Reporter Kim Sang-hoon warned, "It is happening that this alternative route is completely blocked."

Suspicions of cooperation between Iran and the Houthi rebels have heightened tensions in the Middle East, increasing the risk of severe disruptions to oil transportation.

Until now, the release of US strategic petroleum reserves and a reduction in China's crude oil imports have suppressed international oil price increases. However, a new shock—the blockage of Middle East oil detours—has increased the risk of soaring oil prices.

Reporter Kim Sang-hoon pointed out, "The problem is that a new shock has arrived. The shock of this alternative route being blocked." This is a supply shock of a different dimension than before, and currently, there are no means to replace it.

With the US and China's buffer capacity exhausted, there are no viable solutions to compensate for the supply reduction from the Middle East, which is expected to exert direct upward pressure on international oil prices.

Oil transportation via the Suez Canal can only handle half of the total volume due to odd-number restrictions, with the other half relying on pipelines.

However, pipelines also have capacity limitations, making it impossible to secure additional transport volume. Reporter Kim Sang-hoon mentioned, "There may be no increase in the volume that can go this way."

Ultimately, if both land and sea detours in the Middle East are blocked, approximately 4 million barrels of crude oil per day would effectively disappear from the market, exacerbating the global supply shortage.

Reporter Kim Sang-hoon explained, "Last week, the Houthi rebels took control of this area." Major strongholds such as Hanish Islands and Perim Island, which were previously controlled by Yemeni government forces, fell into the hands of the Houthi rebels.

This signifies a strategic shift by the Houthi rebels, moving beyond drone attack threats to physically blockade and control the Red Sea shipping lane. By occupying key islands, they can pose a direct threat to ship passage.

They have explicitly stated their intention to attack Saudi Arabian flagged vessels, posing a direct threat to the Red Sea shipping lane, a key oil export route for Saudi Arabia.

These threats gravely jeopardize the safety of the Red Sea shipping lane, a critical alternative transport route for Middle Eastern oil, and further amplify instability in the global oil market.

Reporter Kim Sang-hoon stated, "It is presumed to be the work of Iranian militias. They launched drones from here and blew up the Saudi pipeline." This attack effectively resulted in the loss of Saudi Arabia's 4 million barrels per day alternative export route.

This pipeline bombing is suspected to be a strategic move by Iranian militias to intentionally accelerate global inflation.

With key oil transport routes becoming direct targets, the Middle East supply shock is becoming a reality, and anxiety in the global oil market is escalating.

The repair of the damaged Saudi East-West Pipeline pump station is expected to take approximately 5 to 6 weeks. Reporter Kim Sang-hoon explained, "If, as foreign media analysts suggest, the pipeline is shut down for about 5 to 6 weeks, that means approximately 4 million barrels of export volume will be lost during that period, right?"

Saudi Arabia has indefinitely suspended pipeline operations, resulting in a daily export void of 4 million barrels of crude oil. This void is expected to create an additional supply shock in the global oil market.

During the first oil shock, crude oil production decreased by 11%, causing prices to surge from $30 to $80 per barrel. Reporter Kim Sang-hoon explained, "During the first oil shock, it was roughly $30 per barrel, and it rose to around $70."

During the second oil shock, crude oil production decreased by 22%, and prices soared from $70 to $162. Reporter Kim Sang-hoon added, "During the second oil shock, oil prices, which were roughly $70, rose to $162." Recent concerns about additional supply disruptions due to the Middle East situation could lead to oil price surges similar to past oil shocks.

Currently, approximately 280 million barrels of strategic petroleum reserves remain, but considering the legal minimum of about 250 million barrels, the additional buffer is almost exhausted. Reporter Kim Sang-hoon pointed out, "Now, it is better not to extract beyond about 250 million barrels. Because it mixes with water."

Strategic petroleum reserves stored in underground salt caverns experience a sharp drop in extraction rate as the remaining volume decreases, and there is a risk of quality degradation due to mixing with water. This is a major factor making it difficult for the US to take further oil price stabilization measures.

A global market crude oil shortage of approximately 10 million barrels occurred, but the US supplemented supply by releasing 3-4 million barrels of strategic petroleum reserves daily and increasing exports.

At the same time, China temporarily reduced crude oil imports by 5-6 million barrels per day, offsetting the supply shortage with reduced demand. Reporter Kim Sang-hoon explained, "This means 10 million barrels of crude oil disappeared from the global market, and someone had to fill it. The US filled about 3-4 million barrels, and China, by using less crude oil, filled about 5-6 million barrels through demand reduction."

Thanks to the roles of the US and China, a significant portion of the Middle East supply reduction was offset, suppressing oil price increases. However, this buffering capacity is now almost exhausted.

The currently committed release volume is 40 million barrels, and the current extraction rate is approximately 1 to 1.1 million barrels per day.

Reporter Kim Sang-hoon stated, "To extract about 40 million barrels, we can roughly extract for about 40 days. After that, even the strategic petroleum reserves in the United States can no longer act as a buffer."

This means that after about 40 days, the US can no longer serve as a buffer against international oil price increases through strategic petroleum reserves. From that point, the global market's vulnerability to additional supply shocks is expected to increase further.

The US strategic petroleum reserves are already nearing depletion, and China's crude oil demand shows signs of recovery, leaving no capacity to absorb this additional shock. Therefore, the 4 million barrel supply gap is expected to exert enormous upward pressure on international oil prices in the future.

Reporter Kim Sang-hoon explained, "It is expected to hit bottom and then rise in the future. Why did it hit bottom? Probably at around 12 million barrels, there is nothing more to cut."

Until now, China's crude oil demand has significantly decreased due to a strong economic slowdown, deflationary pressure, and the spread of electric vehicles. This contributed to suppressing international oil price increases, but analysis suggests that demand has already reached its lowest point.

Therefore, it is unlikely to expect a further sharp decline in crude oil demand from China in the future. Instead, there is a growing possibility that crude oil demand will rebound with the resumption of economic activity, further exacerbating the global crude oil supply shortage. China's demand recovery effectively means that the buffering role that previously helped stabilize oil prices has disappeared.