Saudi running out of oil export options as Iran, allies choke routes

Saudi Arabia is running out of options to export its vast oil reserves as attacks force its main pipeline shut while Iran and its allies cement their chokehold on the kingdom's two main maritime routes, analysts say.

The world's top oil exporter last week shut its East-West pipeline, which runs some 1,200 kilometres (700 miles) between its main oil fields in the east and the Yanbu terminal on the Red Sea, after attacks on its oil facilities originating in Iraq, home to pro-Iran armed groups.

The pipeline became essential for Riyadh's oil trade after Iran blockaded the Strait of Hormuz at the start of the Middle East war, choking its main export route. 

But the usefulness of the pipeline's Red Sea outlet has been curtailed by Houthi attacks from Yemen and their weeks-long maritime blockade on vessels serving Saudi ports.

The kingdom is still able to export part of its oil, which is piped to Yanbu and then exported either via the Suez Canal or Egypt's Ain Sokhna, where it is carried by another pipeline to the eastern Mediterranean.

The other option is embarking on a dangerous journey through the Hormuz strait, where Iran has repeatedly attacked commercial shipping.

"The East-West pipeline is a critical energy artery for Saudi Arabia, especially within the current geopolitical context," Robert Mogielnicki of the US-based Arab Gulf States Institute told AFP.

Since the start of the war, Saudi exports via Yanbu increased fivefold to nearly four million barrels per day, according to commodities data firm Kpler. 

But in July the Houthis announced a maritime blockade against Saudi Arabia, sending exports through the Bab al-Mandab Strait spiralling to nearly zero by August, Kpler said.

The attack on the East-West pipeline showed that even infrastructure meant to secure Gulf exports was not a "silver bullet", said Torbjorn Soltvedt, a Middle East analyst at risk intelligence company Verisk Maplecroft.

- Back to Hormuz? -

Due to the risks, Saudi Arabia is already increasingly using the Suez Canal as well as Egypt's Sumed pipeline from the Red Sea to the Mediterranean, which is used because some supertankers cannot pass through Suez at full load.

Transits of Saudi crude through the canal approached 500,000 barrels per day at the end of July, compared with almost none in June, according to Kpler.

By combining the Suez and Sumed pipeline routes, up to 3.4 million barrels of Saudi crude could theoretically bypass Bab al-Mandab each day, Kpler estimated, but this capacity has never been tested on such a scale.

For crude bound for Asia, Saudi Arabia's main export market, this route would also require sailing up to the Mediterranean and then around Africa, adding weeks on to any journey.

Saudi Arabia has also been shipping some of its oil through the risky Hormuz route, where Iran regularly attacks tankers that do not use its preferred corridor.

Ships transit the waterway with their tracking systems switched off and ship-to-ship transfers still allow crude to be moved out of the Gulf, but daily volumes remain highly volatile and average only about half of their pre-war level, according to Verisk Maplecroft.

- Market pressure -

The consequences of the squeeze on Saudi exports are already being felt in the markets. 

After the announcement of the East-West pipeline's closure, Brent soared to nearly $110 per barrel, while average diesel prices in the US struck a record high of just under $6.27 a gallon on Tuesday, though the Ukraine war is also impacting diesel.

"The global economy will also feel the heat from upward pressure on oil prices resulting from ongoing tensions in and around the region's two choke points and damaged energy infrastructure," said Mogielnicki. 

Adding to pressure is Saudi Arabia saying that "its oil production fell last month to its lowest level since 1990," Ipek Ozkardeskaya of Swissquote wrote in a note to clients.

Repairs of the East-West pipeline could be complicated by the conflict, with disruptions to maritime transport delaying equipment imports, according to Verisk Maplecroft.

For Soltvedt, the attacks are reducing oil exports, while the resulting disruptions to trade in turn complicate the repairs that the kingdom needs to increase them.

"The damage to the pipeline and delays to its repair underscore the growing feedback loop from the regional conflict," he said.

For governments in the region, that vicious circle is taking hold as the US-Iran conflict drags on.

"This is not the direction that Gulf officials were hoping for after six months of war," Mogielnicki said.

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