Samer Choucair: Higher Rates and the Return of the East West Pipeline Test the Cost of Capital and Energy
Investment leader Samer Choucair said markets were preparing for an almost fully priced 25 basis point increase in US interest rates, the first tightening move since 2023, at the same time as signs emerged that Saudi Arabia’s East West pipeline could soon return to operation and loading from the eastern coast was increasing.
Samer Choucair said the coincidence of the two developments was repricing the cost of capital, inflation expectations, and oil supply risk.
He noted that the current federal funds target range stood at 3.50% to 3.75%, while interest rate swaps were pricing a probability of around 94% for a quarter point increase to 3.75% to 4.00%.
At the same time, the market was watching for a resumption of westbound flows toward Yanbu after a precautionary shutdown following the targeting of the pipeline on September 10, alongside a sharp increase in loading activity from the eastern coast.
The Federal Reserve and Markets
Samer Choucair said the expected rate increase was not simply a technical adjustment.
It came with inflation still above the Federal Reserve’s 2% target, partly driven by higher energy prices and supply disruptions linked to the regional conflict.
He noted that the yield on the 10 year US Treasury had moved close to 5%, levels not seen since 2007.
Choucair said markets were not pricing only the rate increase itself. They were also pricing a credibility signal after the probability of tightening moved above 90%.
Samer Choucair said the real test was whether the increase would remain a single move or mark the beginning of a short tightening cycle, a distinction that would shape repricing across equities, cash, and portfolio duration.
He added that the dollar pegs used by most Gulf currencies transmit tighter US monetary policy directly into local borrowing costs.
At the same time, Vision 2030 requires capital intensive investment across infrastructure, transportation, energy, and industry, raising the required return threshold for new projects and increasing the importance of governance and capital discipline.
Oil and the East West Pipeline
Samer Choucair said Brent crude closed near $109 a barrel following reports that Yanbu loadings had been suspended and September shipments to Europe had been canceled.
Prices later eased as expectations grew that the pipeline could return within days.
Choucair said the pricing of some physical cargoes above futures contracts reflected immediate tightness in the market.
The East West pipeline, also known as Petroline, stretches approximately 1,200 kilometers and has maximum capacity of around 7 million barrels per day.
Before the shutdown, it was transporting approximately 4 million barrels per day to the western coast, equivalent to around 4% of global oil supply if the disruption were to become prolonged.
Samer Choucair noted that TankerTrackers data showed around 8.7 million barrels of crude loaded from eastern terminals on Monday, while reports indicated that Aramco had offered cargoes using ship to ship transfers off Sohar in Oman.
Capital Allocation
Samer Choucair said the US Energy Secretary estimated that the pipeline could return within days rather than weeks, while Citigroup pointed to approximately 14 million barrels of inventories at western coast terminals.
He said the difference between a disruption lasting days and one lasting weeks determines the size of the risk premium, even as operating and insurance costs remain elevated despite Saudi Arabia’s ability to reroute supply.
Choucair added that the disruption highlighted the value of having multiple export outlets, storage capacity, and the ability to shift flows between the eastern and western coasts.
It also increased investor attention toward oil services, tankers, marine insurance, and short term fixed income instruments if monetary tightening remains limited.
Institutional Outlook
Samer Choucair said institutional investors were dealing with three layers of risk.
The first was monetary, through the dollar and financing costs.
The second was commodity related, through the oil risk premium.
The third was regional credit risk, with Egypt considering the settlement of around EGP 140 billion in financial obligations and Iraq studying the possibility of swapping part of domestic debt that had reached IQD 114 trillion, around 70% of which was held by the central bank.
Samer Choucair concluded that the base case remained a single rate increase, while the possibility of a second increase before the end of the year was less certain.
He added that the return of the East West pipeline would reduce the risk premium.
Samer Choucair said capital management in 2026 had increasingly become a question of synchronizing financing costs, energy security, and balance sheet quality, leading investors to recalibrate allocations across cash, oil, and Gulf debt through the end of the year.