Iran-Linked Strikes Hit Saudi Oil Infrastructure as Prices Fall

David Haggith

Oil prices have returned to a calmer pattern amid what the author describes as worsening developments in the Iran war. In the latest escalation, Iran resumed attacks on a U.S. military base despite President Trump’s “pause” in the conflict, while Iranian forces or Iran-backed proxies in Iraq reportedly struck Saudi Arabia’s largest oil production facility. At the same time, the Houthis hit an important refinery at the opposite end of Saudi Arabia’s other major east-west pipeline.

The largest facility, which has now been taken offline for repairs, feeds a pipeline route that carries 7% of the world’s oil supply. Even so, oil prices fell, which the author characterizes as inconsistent with the scale of the damage.

Market manipulation

The author cites a recent article arguing that the oil market has become heavily driven by AI-operated and AI-generated algorithms that trade against one another and attempt to anticipate each other’s moves. In that view, the oil futures market has become more like a casino than a traditional market.

Whether or not that explanation is fully correct, the author argues that manipulated markets rarely end well. He notes that the price refiners have been paying for physical crude delivery has hovered around $150 per barrel during much of the conflict, while Brent futures have traded at about half that level. Brent prices fell by more than $4 after the Saudi bypass routes lit up in the sky.

Severity of the damage

The extent of the damage to the two facilities is not yet fully clear. It is not known whether the attacks completely shut down the bypass routes or whether enough infrastructure remains intact for oil to be routed past the refining and tank facilities and loaded onto ships for processing elsewhere. At the same time, the Houthis have turned back a number of ships in the Red Sea, disrupting oil transport in a way similar to last year’s broader shipping disruption.

What is known is that a massive fire broke out at Saudi Aramco’s Abqaiq refinery after drones struck the facility and the East-West Pumping Station in Saudi Arabia. NASA FIRMS satellite imagery confirmed extensive fire activity at the site, indicating significant damage to one of the world’s most important oil processing facilities. Abqaiq is the world’s largest crude oil stabilization plant and processes between 5% and 7% of global oil supply, making it a critical hub for international energy markets.

The damage was serious enough that Saudi Arabia took the plant offline for repairs, although officials did not say how long the repairs would take. The author argues that the repair timeline may not be the main issue, since the more important point is that Iran and its proxies have demonstrated that they can strike some of the world’s most important oil infrastructure.

The attack also raises a secondary risk. Saudi Arabia says the missiles came from an Iran-sponsored group in Iraq, while Iraq denies that claim. Saudi officials said they would retaliate against whoever carried out the strike. The author warns that any mistake in attribution could pull another country into the war and risk broader escalation.

Saudi Arabia’s foreign ministry has urged Iraq’s government to “take all necessary measures to prevent its territories from being used as grounds from which acts of aggression are launched….” The Abqaiq facility plays a central role in Saudi Aramco’s oil processing operations and handles a substantial share of the kingdom’s crude before export.

Despite the damage, the oil market responded as if the news were positive. The author says prices fell even though the attacks raised the risk of supply disruption and additional pressure on global energy markets.

Further damage

The same pipeline system also feeds Saudi Arabia’s Red Sea port at Yanbu, which the Houthis attacked as well, although reports said none of the missiles or drones hit their targets. Yanbu is farther away, which gives Saudi Arabia’s air defenses more time to intercept incoming weapons and may also make precise targeting more difficult.

The Houthis were more successful at the much closer Red Sea port of Jazan, where they have previously hit Saudi tankers and taken them out of service. Jazan is the terminus of the other major east-west pipeline that provides an alternative route away from Hormuz.

The author argues that a futures market’s view does not affect actual supply. Physical oil still depends on whether transport routes are intact, and damage to those routes reduces supply in proportion to the disruption. In his view, this is a war of attrition, and each day of damage worsens the situation for Donald Trump as more oil supply lines are hit.

Saudi Arabia built the East-West pipeline in the 1980s, connecting the Abqaiq refinery to Yanbu port amid concerns that Tehran could disrupt shipping through the Strait of Hormuz during the Iran-Iraq war. The pipeline carries oil across the kingdom from Abqaiq to the Red Sea coastal city of Yanbu, from which tankers head either south to the Arabian Sea or north to the Suez Canal.

The author says the major route created to ease pressure if Iran ever blocked Hormuz has likely been taken out. He suggests Iran can determine how long the disruption lasts by continuing to launch missiles or drones against repair efforts.

An AGBI report quoted analysts saying that Iranian-backed Houthi strikes over the weekend on Saudi Arabia’s Yanbu Red Sea terminal and the Jazan refinery matter less for the physical damage than for what they reveal: the vulnerability of Saudi Arabia’s oil export safety valve.

The East-West pipeline can transport 7 million barrels per day from Saudi Arabia’s Eastern Province to the Red Sea. After supplying roughly 2 million barrels per day to domestic west coast refineries, about 5 million barrels per day of export capacity remains available through Yanbu.

The author asks whether shippers will continue sending supertankers to Yanbu through the increasingly dangerous Red Sea if oil may already be cut off there or could be interrupted at any time.

Even before the latest successful strikes, commodity vessel traffic through Bab al-Mandab, the southern gateway to the Red Sea, had fallen sharply. Shipping data company Kpler said only 11 commodity vessels transited the waterway on Sunday, the lowest daily level in months. Analysts said the weekend attacks were important because of where they occurred and what the facilities represent, not simply because of the amount of physical destruction.

Cyril Widdershoven of Blue Water Strategy said the Houthis appear to be targeting infrastructure used to bypass the Hormuz disruption.

The author says it is unrealistic to assume the Houthis entered the war only to stop after succeeding. In his view, the strikes show that the east-west pipelines either have already been disabled or will be targeted again. He says the entrance of the Houthis marks a significant escalation in both risk and damage.

He notes that the Houthis have attacked Saudi-linked tankers and threatened Saudi maritime activity more broadly.

The last major Houthi-linked strikes on Saudi oil infrastructure were the 2019 attacks on Abqaiq and Khurais. Those attacks temporarily knocked out 5.7 million barrels per day of Saudi production, or about 5% of global oil supply, and triggered the biggest single-day jump in oil prices on record.

This time, the same type of action was followed by a drop in Brent crude, which the author sees as evidence of how detached the market has become from physical reality.

The AI menace

The article then turns to artificial intelligence. The author says that Sam Altman, Elon Musk and other major AI developers have suggested that the second half of this year would mark the arrival of the AI singularity, meaning the point at which human control over AI development is lost. He says Altman has described AI as a genie and suggested that the benchmark has already been reached.

The author draws a parallel between that idea and what he calls the most irrational market in history, arguing that AI may be playing a role in the disconnected pricing of oil.

He notes that markets largely shrugged off the Houthi-Saudi attacks, with oil prices hovering near a one-week low on Monday as the U.S. and Iran paused strikes over the weekend.

Has the SPR hit its functional limit?

The article also discusses the U.S. Strategic Petroleum Reserve. One report described President Trump as playing chicken with the SPR, with the implication that any further drawdown could damage the salt caverns that store the oil and make the reserve unusable in the future.

Another report said Trump’s pause was not about creating room for negotiations with Iran but reflected the U.S. running low on defensive weapons, even as losses in the Middle East have grown.

The author suggests the SPR may have stayed frozen at its current level because taking it lower could damage the storage caverns. He says the reserve’s current level may also reflect a temporary oil supply explained in his earlier writing.

Only Trump is desperate to make a deal

The author argues that Iran is not eager for a deal and is instead prepared to let attrition impose costs over time. He says a war in limbo is useful for Iran because pauses in bombing create room for negotiations that are not real, buying time for pressure on the West to build.

Iran has claimed the U.S. has suffered “strategic defeat at every step.” The author says Trump is the one repeatedly seeking a deal, while Iran keeps demanding 100% of what it wants and continues to walk away from talks.

Trump has said there is “a good chance” diplomacy could yield a breakthrough and that “We’re talking right now.” Iran’s top negotiator, however, denied that talks with the U.S. were taking place.

The author says Trump’s public statements may be influencing oil markets, with algorithms trading on his words in the expectation that other algorithms will react the same way. In his view, neither AI nor Trump shows much concern for truth.

He concludes that Iran benefits from a situation in which Trump talks about negotiations while Iran does not even need to attend them. In his view, Iran believes time is on its side and can absorb the pain longer than Trump can.

The article ends by saying that market pricing has become detached from physical reality and that no one can say with certainty what the participants are thinking.

About the author

David Haggith

David Haggith is the publisher and editor-in-chief of The Daily Doom, an economic, social and political news site covering major global developments from multiple sources, along with daily editorials.

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