Oil prices initially gave back some of last Thursday's sharp gains, with Brent crude slipping back to $104 per barrel, as reports of potential talks between the Gulf Cooperation Council (GCC) and Iran, along with a noticeably weaker demand outlook from the International Energy Agency (IEA), tempered the geopolitical risk premium.

However, the proposed GCC-Iran meeting was scrapped, and Saudi Arabia shut down its East-West pipeline, reversing most of that pullback. By Tuesday, Brent crude had climbed back above $108 per barrel. Citi's research note highlights that these events underscore the fragility of regional energy infrastructure, with risks no longer confined to the Strait of Hormuz.

The recent strong price action is also supported by solid physical market conditions beyond geopolitical headlines. Chinese crude imports are rising with robust refinery buying, and the upcoming maintenance season is expected to be unusually light. While diplomatic efforts could ultimately facilitate the reopening of the Strait of Hormuz, recent developments have reinforced both the geopolitical and fundamental floor under prices.

Citi predicts that near-term escalations will be positive for oil and petroleum products, with the strait eventually reopening in the fourth quarter of 2026, backed by diplomatic efforts from regional players. Yet, the path to de-escalation is unlikely to be straightforward. During this period, even as the GCC pursues a diplomatic resolution, Citi believes Iran will continue to gradually increase pressure until the blockade is lifted.

Saudi Arabia confirmed that its East-West pipeline was attacked last Thursday and subsequently shut down, temporarily removing one of the most critical alternative routes to the Strait of Hormuz. The pipeline, with a nominal capacity of 7 million barrels per day, was reportedly carrying around 5 million barrels per day, allowing roughly 4 million barrels per day of Saudi exports to transit via the Red Sea.

However, OilX cargo-tracking data shows usage has declined significantly in recent months, as a larger share of Saudi crude exports now transit through the Strait of Hormuz. Saudi crude exports via Yanbu have averaged 1.8 million barrels per day so far this month, loaded across 13 vessels, compared with 1.6 million barrels per day and 35 vessels in August 2026.

While Saudi Arabia has not provided a timeline for restart, Citi believes operations should recover relatively quickly. Additionally, inventories at Saudi Arabia's west coast export terminals stand at roughly 14 million barrels, with another 12 million barrels stored at Sidi Kerir and Ain Sukhna, meaning short-term export commitments can still be met from stockpiles even if the outage extends beyond a few days.

Nevertheless, a prolonged shutdown would have increasingly significant repercussions, especially if Red Sea exports need to expand to substitute for the Strait of Hormuz, while the Houthis remain in control of Mocha port. Overall, Citi argues that even substantial investment in bypass infrastructure cannot completely eliminate geopolitical risks, as critical energy assets remain vulnerable to regional attacks.