Saudi Arabia has found a new route for crude oil exports after halting its East-West pipeline operations due to attacks from Iran-aligned forces. The country is now transferring oil through the Strait of Hormuz, which had been effectively blocked due to Iranian threats, and then transferring the oil to another ship off the coast of Oman.
Shuttle Services as the Best Option
On the 17th (local time), reports emerged indicating that "shuttle services" through the Strait of Hormuz are emerging as Saudi Arabia's best option. These reports suggest that the main hope for calming oil prices depends on crude oil exports through the Strait of Hormuz and Saudi Arabia's ability to quickly repair damaged infrastructure.
After the onset of war with Iran and the blockage of the Strait of Hormuz, Saudi Arabia continued its oil exports by sending oil to Yanbu on the Red Sea coast using the East-West pipeline. According to analysis from the International Energy Agency (IEA), crude oil exports that have avoided the Strait of Hormuz have compensated for about one-fifth of the reduction in crude oil supply resulting from the closure of the strait from July to August.
Challenges and Additional Costs
However, with the closure of the East-West pipeline due to attacks and increasing threats from Houthi rebels in the Red Sea, using the existing export route has become challenging. For this reason, Saudi Arabia has turned to shuttle services through the Strait of Hormuz. In this shuttle operation, tankers typically move under U.S. military protection at night in convoy formation or turn off their Automatic Identification System (AIS) to pass through the Strait of Hormuz.
Various analyses indicate that approximately 9 million barrels per day of crude oil and petrochemical products are exiting through the Strait of Hormuz. Following the increase in Saudi oil supply to Asian countries via shuttle services, Brent oil contracts, which are a global benchmark, have decreased to $104.82 per barrel.
Despite this, the risk of attack remains as ships must pass through the Strait of Hormuz again. Experts predict that ships will likely move by turning off their AIS devices and coordinating with the U.S. Navy.
Shuttle operations also involve significant additional costs. Reports indicate that oil producers are forced to pay $16 to $20 per barrel to compensate for the risks of passing through the Strait of Hormuz. Insurance premiums can also reach up to 10% of the value of the ship and cargo.
Ultimately, Saudi Arabia, which relies on oil for more than half of its financial revenue, needs to maintain oil exports as much as possible.
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