- Lead. A drone strike on Saudi Aramco’s Shaybah oil field on Thursday killed two people and sent Brent crude up 1.7% to nearly $111 a barrel, the highest level in weeks, reigniting fears about inflation just as central banks prepare to hold rates steady.
- Fact. The US Federal Reserve is expected to keep rates unchanged at its October 28 meeting, but markets now price a possible fourth hike in December — a probability that rises with every dollar oil adds.
- Stake. With US headline inflation already at 3.7% in September and the PCE report due October 29, a sustained move above $110 in oil could derail the cautious “hold and watch” stance that Chair Kevin Warsh has signaled.
A drone struck Saudi Aramco’s Shaybah oil field in southeastern Saudi Arabia on Thursday, killing two workers and forcing a partial shutdown, according to Goodreturns. The US State Department ordered non-emergency personnel and family members to leave its Saudi embassies in the immediate aftermath. Brent crude surged 1.7% to $110.75 in Thursday trading, while West Texas Intermediate rose 1.4% to above $98.50. The intraday high touched $111.32, marking the highest point since mid-October for the front-month contract.
Timing That Complicates the Fed
The attack arrives at a particularly sensitive moment for the Federal Reserve. The Federal Open Market Committee meets October 28 and is widely expected to hold its policy rate steady, with markets pricing an 85% probability of no change. Chair Kevin Warsh has declined to offer forward guidance in recent weeks, and his silence has done little to shift that consensus — as this outlet reported earlier this week.
But the calculus shifts if energy prices remain elevated into next month. Markets are now pricing a potential fourth 2026 rate hike in December. The September CPI already showed headline inflation at 3.7%, driven in large part by fuel costs. The Personal Consumption Expenditures index — the Fed’s preferred measure — is due October 29, one day after the rate decision, and another upside surprise on energy could sharpen calls for December action even if October holds.
Spillovers Beyond the US
The Shaybah attack is one of the most direct strikes on Aramco’s production infrastructure since the 2019 Abqaiq attack, which temporarily cut Saudi output by roughly half. This strike is smaller in scale, but its timing — during a period of already-elevated Middle East risk premium — amplifies its market impact. The European Central Bank and Bank of Japan are also expected to hold rates at their next meetings, but both face the same arithmetic: sustained oil above $100 makes their inflation targets harder to defend without further tightening.
Gasoline retail prices in the US rose about 1% on Thursday alongside crude, extending a run that has kept pump prices above six dollars a gallon in some states. The Trump administration’s $8 billion Harvest Fuel Relief Program, announced earlier this month to offset diesel costs for farmers, is set against that backdrop. Whether such targeted relief will be enough to dampen inflation expectations — rather than broader rate action — is a question the Fed will not resolve at its October meeting, but cannot defer indefinitely.