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Suddenly unexpected diplomatic snow has fallen on the fire that was burning in the global energy market for the last few days. Brent crude prices jumped to $ 110 per barrel after Yemen’s Iran-backed Houthi rebels launched deadly drone attacks on Saudi Arabia’s vital oil infrastructure. Due to damage to the pumping stations of Saudi’s most important ‘East-West Pipeline’ and stoppage of supply from the Yanbu export terminal of the Red Sea, there was a fear of 4% supply disruption in the global market.
But at the same time, oil prices in the international commodity market fell for the third consecutive trading session, with Brent crude falling to $103-$104 and American WTI falling to near $100 per barrel. The news spread in the financial circles that ‘a phone call from China and a secret conversation behind the scenes’ had stopped this storm. Let us know what big agreement has been reached behind the scenes between Saudi Arabia, Iran and China.
According to Reuters and international media reports, this whole incident started when Houthi rebels in Yemen rapidly increased their military activities towards the coastal areas of the Red Sea and the Bab el-Mandeb Strait.
When Saudi Arabia’s oil exports and maritime shipping were under serious threat, the Saudi leadership, instead of looking towards Washington, took direct action. Beijing (China) Appealed for immediate intervention. Saudi Arabia argued that if the Houthis completely destroyed its Red Sea alternative oil supply lines, it would devastate not only the Gulf country but the entire Asian economy.
As soon as Saudi’s appeal was received, the Chinese leadership sent a very strong and confidential message to Tehran (Iran). The message was delivered during or in parallel to Iranian Foreign Minister Abbas Araghchi’s recent visit to Beijing:
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Warning against disturbing energy corridors: China clearly asked Iran to use its influence on Yemen’s Houthi rebels and immediately limit attacks on Saudi Arabia’s oil installations and Red Sea shipping routes.
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China’s economic leverage: Beijing, the world’s second-largest economy, has been Iran’s biggest trading partner and lifeline for the past decade. Whatever marine crude oil Iran exports, More than 80% share (about 1.4 million barrels per day) China alone buys. China clearly indicated that if the Gulf’s major energy routes were disrupted, it would be a direct blow to China’s national interests.
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Iran’s stance: Tehran has publicly reiterated that stability will come only when the US-Israel war stops, but internally it has hinted at controlling the Houthis’ unbridled attacks so as not to anger its biggest strategic and economic backer like Beijing.
Not just Beijing’s diplomacy, but the immediate logistics options adopted by Saudi Arabia also allayed traders’ fears:
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Alternative shipping from Sohar port of Oman: After the pipeline was affected, Saudi Aramco immediately took strategic steps and started ‘Ship-to-Ship Transfer’ through Sohar port of Oman. Due to this, the supply of oil to Asian refineries continued without interruption.
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Repair of East-West Pipeline: Repair work on Saudi Arabia’s East-West Pipeline has begun on a war footing and is expected to restore half its capacity within days, according to the US Energy Secretary and satellite assessments.
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China’s past intermediary track record: The market felt confident because even in March 2023, China had made historic mediation and restored diplomatic relations between Saudi Arabia and Iran.
| benchmark crude | Peak Rate (after attack) | Current rates (after latest fall) | cause of decline |
| Brent Crude | ~$109.80 / barrel | $103.70 – $104.80 | China’s pressure, alternative supply from Oman |
| WTI | ~$106.00 / barrel | $100.30 – $100.80 | US refining concerns and Saudi repair hints |
There has been a temporary softening in the market, but JPMorgan and energy experts believe that the risks have not completely ended. The movement of ships in the Strait of Hormuz is still much less than usual and sporadic incidents continue on both sides.
If, under this backchannel diplomacy of Beijing, the Houthi attacks really stop completely and the Red Sea shipping route becomes safe, then crude oil could return to the $90 range. But if this secret deal falters, oil prices will again start running beyond three digits.