by Larry C. Johnson via Sonar 21,
For most of this war, Saudi Arabia has been the shock absorber of the world oil market.
When Hormuz closed, Riyadh pushed crude west through the East-West
pipeline to Yanbu on the Red Sea and kept at least part of its exports
moving. That bypass is now under attack. Ansar Allah has seized islands
at the mouth of the Red Sea, declared a "maritime ban" on Saudi shipping
and claimed strikes on Saudi airports, and in September drones knocked
the East-West pipeline largely out of service. Riyadh blamed that strike
on Iranian-backed militias in Iraq. On October 4 a pumping station at
Khurais, east of Riyadh, was hit for the first time and the pipeline
stopped again.
Karl
Miller, whose earlier assessment of the global fuel emergency I have
drawn on before, has just completed a new analysis of what this means
for Saudi Arabia and for the world. His conclusion is stark: the Gulf's
energy system will take far longer and cost far more to rebuild than
anyone in Washington is admitting, and Saudi Arabia can no longer be
counted on to cover the gap. Here are his key findings.
1. The bypass is the weak point
Miller's
starting point is that a pipeline is not a pipe. It is a connected
system of pumping stations, power supplies, controls, storage tanks and
loading berths, and it is only as strong as its weakest link. The
September damage to the East-West pumping stations, the October
interruption at Khurais, a fire at the Riyadh energy complex and the
disruption of Saudi aviation all hit that system at different points.
The pipeline has been partly restored, but Miller warns that permanent
equipment losses remain unresolved. Yanbu can be shut down without a single bomb hitting the port: if crude stops arriving, tankers stop loading.
He
also cautions against counting damaged stations as if each represented a
fixed share of lost capacity. What matters is throughput, and he
measures it against a benchmark of 5.8 million barrels a day through the
corridor. A complete interruption for seven days would put 40.6 million
barrels of movement at risk; for 30 days, 174 million. He stresses that
this is a stress calculation, not a claim that the line is fully shut.
2. The rebuild now runs to 2033–2036
In
his previous paper Miller set a five-year horizon for rebuilding the
damaged Gulf energy complex. He has now extended it to seven to ten
years for the most severely damaged, interconnected systems, meaning
recovery between roughly October 2033 and October 2036. Partial output will return sooner, but full, reliable operation will not.
The
reason is equipment. Large compressors, turbines, high-voltage
transformers, specialized pressure vessels and integrated control
systems are custom-built and cannot be pulled from a warehouse. His
critical path for replacing such a package is 84 months: a year to
define the damage and fund the design, three years to procure and
manufacture, two years to deliver and install, and a year to commission
and stabilize. Insecure sites, financing gaps, factory queues and
repeated attacks could add up to three more years. As he puts it, money
can reserve a manufacturing slot, but it cannot compress every stage of
engineering and fabrication.
3. A bill of $550 billion to $2.28 trillion
Miller models the reconstruction of the wider Gulf energy system, Saudi Arabia included, in three scenarios. He
is explicit that these are funding envelopes built on stated
assumptions, not audited damage estimates and not a Saudi-only bill.
| | Controlled | Central | Severe |
| Base reconstruction capital | $400 bn | $800 bn | $1,400 bn |
| Execution uplift (security, delays, escalation) | $100 bn | $280 bn | $630 bn |
| Finance and startup liquidity | $50 bn | $120 bn | $250 bn |
| Total funding envelope | $550 bn | $1.20 trn | $2.28 trn |
Source: Karl W. Miller, Saudi Arabia: The Breaking Point (12 October 2026). Covers the broader Gulf reconstruction portfolio.
In
the central case, $180 billion must be committed in the first two years
alone, rising to $540 billion in years three to five. Over seven years
that averages more than $170 billion a year. And every Gulf state will
be competing for the same manufacturers, engineering firms, fabrication
yards and specialist crews. A transformer slot taken by Kuwait or Qatar
is one that Saudi Arabia does not get.
4. Delay is expensive
Miller puts numbers on what waiting costs.
A three-year delay on the central program could add $76 billion to $125
billion in cost escalation and another $42 billion to $90 billion in
financing charges. Meanwhile the fuel must still be bought somewhere:
each year that 1 million barrels a day of fuel supply stays offline
means 365 million barrels to replace, about $55 billion at his
illustrative price of $150 a barrel. Leaving his full 3 million
barrel-a-day gap unrepaired for three more years implies nearly $500
billion in replacement purchases.
5. The diesel gap gets wider
Miller's
baseline remains a minimum global shortfall of 3 million barrels a day
of diesel and jet fuel. The Saudi attacks threaten to push it higher. If
disruption leaves 1 million barrels a day of crude unable to reach
working refineries, the loss of diesel and jet fuel is roughly 300,000
to 450,000 barrels a day. An additional net loss of 500,000 barrels a
day would raise his baseline to 3.5 million, an increase of one-sixth,
adding 15 million barrels of shortfall every month.
He is careful
not to double count: lost crude, the refinery output it would have
produced and the missed export cargo may all be the same barrels. But
the direction is clear. Saudi Arabia was the Gulf's main source of
relief. If its bypass is unreliable, the global deficit grows.
6. America cannot fill the hole
Miller's
test of American capacity is sobering. Over the four weeks to October
2, US refineries produced about 5.17 million barrels a day of
distillate, exported 1.56 million and used 3.77 million at home.
Replacing a 3 million barrel-a-day gap from the United States alone
would require 58% more distillate output than American refineries
produce today. US production is only about 150,000 barrels a day higher
than a year ago; the global gap is nearly 20 times that. Promising more exports does not create more fuel. It simply moves the shortage from one buyer to another and drains American inventories.
7. Food, freight and flights
The
fuel crisis is already reaching the real economy. Cereal prices are
17.2% higher than a year ago. Farmers need diesel before the harvest
pays, truckers before their invoices are settled, and refrigeration
before food reaches the shelf. Airlines need certified jet fuel at the
airports they serve, and diesel cannot substitute for it. Miller's
warning is that the weakest buyers, countries short of foreign exchange
and credit, will not just pay more. They will be priced out entirely.
My take
Miller's
assessment confirms what I have been arguing for months: the energy
damage from this war is not a temporary price spike that ends when a
ceasefire is signed. Reopening a shipping lane does not rebuild a refinery.
Saudi Arabia, which only months ago was the world's insurance policy,
is now itself a source of risk, and its economy shows it: Saudi oil
activity fell by a quarter in the second quarter and GDP shrank 4.8%.
The rebuilding of the Gulf will be measured in years and trillions of
dollars, and the world will be short of diesel for much of that time.
That
should be the frame for every promise coming out of Washington, whether
it is Russian diesel, export bans or claims that prices are about to
fall. As Miller concludes, recovery will be proven by fuel actually
delivered, not by repairs announced or by a lower headline price.
