The global oil supply chain faced a major setback on Saturday as the United Arab Emirates (UAE) suspended several oil-loading operations at the Fujairah port. The move comes after Iran launched a major drone attack that led to a subsequent fire at the facility, which serves as one of the world’s most critical energy hubs at the moment.
Adding to the weight of the development, the disruption to Fujairah’s operations comes at a time when energy markets are already on edge due to the ongoing regional conflict in West Asia.
How an attack on Fujairah threatens to rattle global oil?
Fujairah is more than just a port; it is a global “refueling station” and a vital exit point for crude oil serving as a key oil transit facilitator in the gulf. According to data from Kpler, Fujairah exported an average of 1.7 million barrels per day (bpd) last year which represents roughly 1.7% of the entire world’s daily oil demand.
Furthermore, the port’s importance has skyrocketed recently because the Strait of Hormuz is effectively closed due to the Iran-US-Israel war. Since Fujairah sits outside that narrow waterway, it has become the primary ‘safety valve’ for oil flowing to international markets.
The UAE’s strategic ‘safety valve’
For the UAE, Fujairah is a lifeline. Before the war, the country produced over 3.4 million bpd of crude. To ensure this oil reaches the world without passing through the dangerous Strait of Hormuz, the UAE uses the Abu Dhabi Crude Oil Pipeline (ADCOP).
This pipeline carries the UAE’s renowned Murban crude directly from Abu Dhabi’s oil fields to Fujairah. However, with the Strait of Hormuz blocked for the temporary foreseeable future, any long-term shutdown at Fujairah could prompt the UAE (OPEC+’s third largest oil producer) to further reduce its production, as there would be almost nowhere else for the oil to go.
The global oil pantry: World class storage and blending facilities at risk
Beyond exporting crude, Fujairah is a massive storage hub. It has the capacity to hold 18 million cubic metres of oil and fuel. It is also a world leader in blending, the process of mixing different oil components to create high-quality gasoline and fuel for ships.
Major global companies, including ADNOC, Vitol, and Vopak, operate huge tanks at the port. If these operations remain suspended, ship owners across the globe could face a severe shortage of bunker fuel (ship fuel), which could seriously slow down international trade.
Market analysts interviewed by Reuters warn that the attack could trigger a sharp rise in oil prices. According to the report published by Reuters, as of late Saturday, traders are closely watching to see how quickly the fire is contained and when loading can resume.