With Iran keeping operations in the Strait of Hormuz suspended due to strikes by the United States and Israel since February 28 with no relief in sight, Saudi Arabia has offered its long-term oil customers another option for their April allocation via the Red Sea port of Yanbu.
How will the supply via Yanbu work?
According to a Bloomberg report, those who chose to ship via the Red Sea port of Yanbu will only get a portion of their April shipment. It depends on how much oil the pipeline – which is 1,200 km long – will carry to the port of Yanbu.
Crude shipments to Asia from the Red Sea have to travel across the peninsula, making the route longer than from the Gulf region and increasing transit time and costs, a Hindustan Times report said.
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Aramco has been increasing supplies through Yanbu since the start of the war, now in its third week. The Saudi producer also took the unusual step of offering crude oil loaded from the port through spot market tenders. However, it now offers contract deliveries from the Red Sea Terminal.
Sourcing through the Persian Gulf
Another option is to get oil from the Persian Gulf, although that carries the risk that supplies will not arrive if the strait remains closed, the traders said, requesting anonymity because they were not authorized to speak to the media.
The Red Sea and the Suez Canal
This route connects the Indian Ocean with Europe via the Red Sea and the Suez Canal. To enter the Suez Canal, ships must travel from the Arabian Sea, pass through the narrow Bal el-Mandeb Strait and then into the Red Sea, an NDTV report said.
It is said to be one of the fastest routes connecting Asia and Europe – carrying shipments destined for the West.
Cape of Good Hope
Mint had earlier reported that shipments bound for Europe from India are becoming more expensive and slower as global shipping lines take a longer route around the Cape of Good Hope on South Africa’s southern tip amid escalating tensions between the US and Iran.
All additional diversion costs are passed on to the exporter – fuel, crew and operating costs. Hari Radhakrishnan, an expert at the Insurance Brokers Association of India (IBAI), told Mint: “If the conflict drags on, ships will continue to avoid the Persian Gulf and the Red Sea, leading to higher shipping and handling costs. These increases will eventually be passed on to end customers as shipping operates on a margin of less than 10 percent.”
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If the war continues, traders quoted by Bloomberg said crude loaded at Yanbu bound for Asia would likely be sold on a delivery basis, rather than being sold on the usual loading basis where customers make their own transport.
They said the oil the refinery offers through Yanbu is only Arab Light grade.
Meanwhile, as the Strait of Hormuz remains blocked due to conflict in the region, Donald Trump recently called on some countries to send warships into the canal to safely escort oil shipments.
But America’s allies have expressed concern about getting dragged into a war with Iran if they help America open the canal.
UK Prime Minister Keir Starmer said: “We will not be drawn into a wider war. Ultimately we have to open the Strait of Hormuz. That is not an easy task.”
Luxembourg Foreign Minister Xavier Bettel was more blunt – “Blackmail is not what I would like.”
Spanish Foreign Minister Jose Manuel Albares said: “We must not do anything to further increase tensions or escalate. We need the bombings and missile launches against all countries in the Middle East to stop and to return to the negotiating table.”
The blockade of the Strait of Hormuz has caused energy prices around the world to soar, prompting governments and families to fear inflation, an economic slowdown and even disruption of food supplies.
