RIYADH (Dispatches) -- Oil prices climbed on Tuesday after Saudi Arabia halted its main cross-country oil pipeline following a drone attack that damaged two pumping stations along the link.
U.S. oil prices rose 1.4% even though Saudi Aramco claimed that the attack caused "no damage to oil production, no oil spills or injuries." Brent crude, the global benchmark, jumped 1.6%.
The apparent drone attack came just a day after Saudi Arabia said two of its oil tankers were sabotaged off the coast of the United Arab Emirates.
Saudi Aramco, the kingdom's state-owned oil company, said the drone attack targeted two pumping stations located between Riyadh in the east and Yanbu in the west.
Houthi fighters in Yemen said earlier on Tuesday that they had targeted key Saudi installations using seven drones, according to the Saba news agency.
One of the pumping stations that was hit was about 700 kilometers (435 miles) from the Yemeni border. Houthi forces possess unmanned aerial vehicles that can reach targets as far as 1,500 kilometers away, a UN report issued in January said.
The state producer officially known as Saudi Arabian Oil Co. halted the pipeline transporting oil from eastern fields to the port of Yanbu as a precautionary measure after armed drones attacked two pumping stations, igniting a fire, according state news agency SPA.
The East-West pipeline spans 1,200 kilometers from Dhahran on Saudi Arabia’s Persian Gulf coast to Yanbu on the Red Sea, allowing oil shipments from the kingdom to bypass the Strait of Hormuz.
The pipeline can transport 5 million barrels a day across the country for use in its own refineries and for export from the port of Yanbu. Aramco is working to expand the pipeline’s capacity to 6.5 million barrels of crude a day by 2023, according to a bond prospectus.
On Sunday, the UAE described a "sabotage attack" which targeted four commercial vessels. Saudi Arabia said a day later two of its oil tankers were among those attacked off the coast of Fujairah.
Oil futures rose more than a dollar to trade at $71.75 a barrel on concerns about supply disruptions in the market which is already under pressure from Washington’s bid to cut Iran’s oil exports to zero and reduce exports from Venezuela.
The U.S. earlier this month ended exceptions to sanctions on Iranian oil sales. Iran denounced Sunday’s maritime incident and warned against attempts to destabilize the region.
Saudi Arabia is the largest producer in the Organization of the Petroleum Exporting Countries (OPEC) and the UAE is the third.
But the worst havoc of all was wreaked on the Persian Gulf stock markets suffering their biggest single-day decline in years.
Saudi shares had their worst day since mid-October, declining 3.6%. Insurance companies were among the biggest drags on Saudi Arabia’s index which has declined nearly 10% since the start of May.
The Dubai index was down 4% in the sharpest single-day decline since June, 2016 with 26 of 37 stocks falling and none rising. Abu Dhabi's index was down 3.3%, its biggest one-day drop since January, 2016.
According to Mihir Kapadia, chief executive of Sun Global Investments, the declines in the Persian Gulf markets reflected jittery sentiment among investors amid regional uncertainty.
"The sabotage attack of two Saudi oil tankers off the coast of the UAE has surprised investors who are already jittery due to rising trade tensions between the U.S. and China," he told Reuters.
Last month, a quarterly Reuters poll of economists lowered growth outlook in the Arab Persian Gulf economies.
According to Deutsche Bank’s Middle East and Africa CEO, market sentiment is not great for Persian Gulf states, acknowledging the concerns that investors have held about the region in recent years.
On the flip side, the regional Arab rulers play a second fiddle to the prevailing uncertainty through a series of policies which stir tensions in the region.
Last week, the United States sent an aircraft carrier task force, bombers and other assets into the region in a further escalation.
According to London-based consultancy Capital Economics, "a slowdown has almost certainly got underway at the start of 2019” in Saudi Arabia.
The UAE fell into deflation in January, with property prices in the commercial hub of Dubai down some 25 percent since 2014.
Bahrain had to get a $10 billion aid package from its from its neighbors late last year, and Moody’s stripped Oman of its last investment-grade rating.