Economy 'subjected to worst fears' as oil prices SURGE to $108 a barrel after pipeline strike

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A drone strike on Saudi Arabia's East-West pipeline has pushed oil prices to a new high

Brent crude oil prices have soared to $108 per barrel after a drone strike targeted Saudi Arabia's East-West pipeline, marking the latest sharp escalation in the US-Iran war.

The benchmark subsequently pulled back to $107.22, while West Texas Intermediate stood at $102.66. The attack on the Saudi infrastructure risks removing a further four per cent of the world's oil supply from the market, compounding fears already gripping energy traders.

Diplomatic efforts to de-escalate the broader regional crisis appear to be crumbling simultaneously, with Oman-hosted peace negotiations that had been scheduled for today scrapped entirely.

It is understood that Saudi Arabia's Red Sea port of Yanbu holds only five to seven days' worth of export supplies, as Yemeni Houthi forces tighten their grip over the waterway.

The pipeline itself has the capacity to transport seven million barrels of crude per day, though the extent of any damage remains unknown.

"It's unclear how severe any potential damage is, or how long it will be out of action," ING commodity strategists noted in a morning briefing.

Despite the dramatic price spike, the ING team led by Warren Patterson and Ewa Manthey struck an upbeat tone. The bank is holding to its forecast of $80 per barrel for Brent in the fourth quarter.

The pair wrote: "The situation is fluid as we continue to see sizeable volumes of oil still moving through the Strait of Hormuz."

However, the optimism sits uneasily alongside the deteriorating security picture around Saudi export infrastructure and the Houthis' expanding territorial reach along the Red Sea corridor.

Over the weekend, President Donald Trump declared that the United States could remain in Iran and "keep the oil" once the conflict is over.

Speaking to journalists, the Commander-in-Chief asserted that "we'll ultimately get out (of Iran), unless we decide to stay and keep the oil like Venezuela", adding that revenue from Venezuelan oil sales had "paid for the war many times."

President Trump predicted that petrol prices would "drop like a rock" once hostilities with Iran concluded. The Oman-brokered talks, which had been intended to bring the warring parties together on Monday, were called off.

Chris Beauchamp, the chief market analyst at IG, warned that the confluence of threats was bearing down heavily on the world economy.

He explained: "Rising oil prices continue to pile pressure on the global economy, with a move back to the spring highs looking increasingly likely.

"Oil markets are being subjected to their worst fears all at once; attacks on energy infrastructure, the closure of Hormuz and a breakdown in attempts to restart negotiations.

"The major surprise is how calm markets remain in the face of all this, but if prices breach the March highs, things could get ugly very quickly."