Citibank: The recent escalation of the war in the Middle East favors oil price detours infrastructure difficulties and completely eliminates geopolitical risks

The Zhitong Finance App learned that Citibank released a research report saying that oil prices initially fell from a sharp rise last Thursday (10th), and Brent futures once fell back to 104 US dollars per barrel. Due to reports that the Gulf Cooperation Council (GCC) may hold talks with Iran and the International Energy Agency (IEA) demand outlook clearly weakens, part of the geopolitical risk premium has subsided. However, with the cancellation of the proposed GCC and Iran meeting, and Saudi Arabia's closure of the East-West pipeline, most related trends have been reversed since then. Brandt oil futures rebounded to over $108 per barrel this Tuesday (15th).

The bank said the incident highlighted that energy infrastructure in the region is still weak, and the risk is no longer limited to the Strait of Hormuz. The recent strong price trend was also strongly supported by the spot market other than geopolitical news. China's crude oil imports are rising, refinery procurement is strong, and the upcoming maintenance season should be unusually light. Diplomatic efforts could eventually facilitate the reopening of the Strait of Hormuz, but recent developments have strengthened the geopolitical and fundamental bottom of prices.

Citi expects that the short-term upgrade will benefit oil and petroleum products. After that, the Strait of Hormuz will finally be reopened in the fourth quarter of 2026, and will be supported by the diplomatic efforts of participants in the region. Recent developments suggest, however, that the path to mitigation is unlikely to follow a straight line. During this period, even if the GCC seeks a diplomatic solution to the conflict, the bank believes Iran will continue to gradually escalate to increase pressure until the end of the blockade.

Saudi Arabia confirmed that its east-west pipeline was attacked last Thursday (10th), then closed, temporarily removing one of the most important alternatives to the Strait of Hormuz. The pipeline's nominal production capacity is 7 million barrels per day. According to reports, the previous flow rate was about 5 million barrels per day, which allowed Saudi exports of about 4 million barrels per day to be exported via the Red Sea. However, OilX freight tracking data shows that usage has declined sharply in recent months, as a larger proportion of Saudi crude oil exports transit through the Strait of Hormuz.

Saudi crude oil exports through the port of Yanbu have been 1.8 million barrels per day since September, with a total of 13 ships loading, compared to 1.6 million barrels and 35 ships per day in August 2026. Although Saudi Arabia did not provide a restart schedule, the bank believes operations should resume more quickly. In addition, Saudi Arabia's West Bank export terminal recently had stocks of about 14 million barrels, and another 12 million barrels were stored in Sidi Kerir and Ain Sukhna, which means that even if the shutdown continues for more than a few days, short-term export commitments can still be satisfied through inventory collection.

However, if the shutdown period is extended, the impact will be increasingly significant, especially when Red Sea exports need to be increased to replace the Strait of Hormuz and the Houthis still control the port of Mocha (Mocha). Overall, the bank believes that even a large investment in bypass infrastructure cannot completely eliminate geopolitical risks, as critical energy infrastructure is still vulnerable to attacks within the region.