With Iran keeping the operations in Strait of Hormuz suspended over the strikes by the United States and Israel since February 28 with no relief in sight, Saudi Arabia has offered another option to its long-term oil customers their April allocation via the Red Sea port of Yanbu.
How will supply via Yanbu work?
According to a Bloomberg report, those who chose a supply via the Red Sea port of Yanbu will only get a postion of their April supply. It depends on how much crude can the pipeline – which is 1,200 km long – to the Yanbu port can carry.
Oil shipments to Asia from the Red Sea must travel around the peninsula, making the route longer than from the Gulf region and adding to shipping time and costs, a Hindustan Times report mentions.
Aramco has been ramping up shipments via Yanbu since the beginning of the war, now into its third week. The Saudi producer has also taken the unusual step of offering crude loaded from the port through spot market tenders. However, it’s now offering contracted supply from the Red Sea terminal.
Sourcing through Persian Gulf
The other option is to source oil from the Persian Gulf, though that carries the risk of supplies not arriving if the strait remains closed, traders said, requesting anonymity as they are not authorized to speak to the media.
Red Sea and Suez Canal
This pathway connects the Indian Ocean to Europe via the Red Sea and the Suez Canal. To reach the Suez Canal, the ships have to travel from Arabian Sea, pass through the narrow Bal el-Mandeb Strait and then to the Red Sea, an NDTV report says.
This is said to be one of the fastest routes connecting Asia and Europe – carrying shipments being delivered to the west.
Cape of Good Hope
Mint had earlier reported that the shipments that are Europe-bound from India are turning costlier and slower, as global shipping lines take the longer route around the Cape of Good Hope at the southern tip of South Africa amid escalating US–Iran tensions.
All the added costs of rerouting get passed on to the exporters – fuel, crew and operations costs. Hari Radhakrishnan, an expert at the Insurance Brokers Association of India (IBAI), told mint“If the conflict prolongs, ships will continue to avoid the Persian Gulf and Red Sea, leading to higher freight and attendant costs. These increases will ultimately be passed on to end customers, as shipping operates on margins of less than 10%.”
If the war continues, the traders, quoted by Bloomberg, said that oil loaded at Yanbu and headed to Asia would likely be marketed on a delivered basis rather than being sold on the usual loading basis, where customers arrange the shipping themselves.
The oil that refiners are being offered via Yanbu is only the Arab Light grade, they said.
Meanwhile, as the Strait of Hormuz remains blocked due to teh conflict in the region, Donald Trump recently urged some countries to send warships to the channel to escort the oil supply out safely.
US allies have, however, expressed unease about getting pulled into the war in Iran if they help America in opening the channel.
Prime Minister of the United Kingdom, Keir Starmer, said, “We will not be drawn into the wider war. Ultimately we have to open the Strait of Hormuz. That is not a simple task.”
Luxembourg’s Foreign Minister Xavier Bettel was more blunt – “Blackmail is not what I wish for.”
Spanish Foreign Minister Jose Manuel Albares said, “We must not do anything that adds even more tension or escalation. What we need is for the bombings and the missile launches against all countries in the Middle East to stop, and for us to return to the negotiating table.”
The blockade at the Strait of Hormuz has sent energy prices soaring across the world, leaving governments and families worried about inflation, economic slowdowns and even food supply disruptions.
