Explained: Cyberattack on Colonial Pipeline in United States could drive up fuel prices globally

If the 8,500-km pipeline remains offline for much longer, it could have significant implications for local and global oil prices

The US government declared a state of emergency on Sunday in an attempt to keep fuel supply lines running after a cyberattack on the country’s largest fuel pipeline system threatened to disrupt supply and raise prices.

The declaration will relax controls on transporting fuels by road to contain the fallout from the continuing shutdown of the Colonial Pipeline, that supplies nearly half the fuel consumed by the populous US east coast after its systems were compromised by a ransomware attack on Friday.

What happened?

The Colonial Pipeline Company was forced to shut down its entire automated pipeline system after the ransomware attack, in which unidentified hackers took more than 100 gigabytes of data, Reuters reported, citing sources familiar with the incident.

“This Declaration addresses the emergency conditions creating a need for immediate transportation of gasoline, diesel, jet fuel and other refined petroleum products and provides necessary relief,” the Department of Transportation said.

Panic Buying

Even as the White House scrambled to get the 8,500-km pipeline back online as quickly as possible, an extended outage could have serious repercussions for fuel prices both locally and internationally, given the size of the pipeline, which transports more than 2.5 million barrels of oil every day.

Gasoline demand in areas that the pipeline serves has already climbed, in what experts say could indicate panic buying by local consumers. A prolonged outage could see a further price rise in the southeastern United States.

While its mainlines remain offline, Colonial on Sunday said some smaller lateral lines between terminals and delivery points were now operational. The company gave no indication as to when the pipeline would be back to being fully operational.

Petroleum Imports

The outage could also force the US to ramp up petroleum imports from outside the country, which would be more expensive than domestic production and lead to higher oil prices in international markets. However, global crude prices registered only modest gains on Monday as rising Covid-19 cases in India continue to dampen demand outlook.

The pipeline also delivers jet fuel to major airports across the US and extended downtime could result in air traffic disruptions. The pipeline also provides fuel for the US military across bases in the areas it covers.