Saudi Arabia Resumes Red Sea Oil Exports in Blow to Iran

Dow Jones
Sep 29

DUBAI-Saudi Arabia has resumed exporting oil via its East-West pipeline after repairing damage caused by drone strikes, people familiar with the matter said Monday, restoring a crucial route around the Strait of Hormuz and dealing a blow to Iran.

Stretching 750 miles across Saudi Arabia to the Red Sea port of Yanbu from the kingdom's oil-producing heartland on the Persian Gulf, the East-West pipeline has become one of the world's most important pieces of energy infrastructure during the Iran war, serving as a workaround for sharply curtailed tanker traffic through Hormuz.

The East-West pipeline can carry up to 7 million barrels a day-about 2 million for domestic Saudi refiners and the rest for export-but had never operated at full capacity for an extended period before the Iran war began on Feb. 28. Roughly 4 million barrels a day-around 4% of global supply-were flowing through it before drone strikes blamed on Iran-backed forces in Iraq damaged the pipeline on Sept. 10, analysts estimate.

The resumption of East-West pipeline exports comes as Saudi Arabia has also figured out how to get more oil past Iran in the Strait of Hormuz. Loadings at Saudi Arabia's Gulf port at Ras Tanura recently surged to around 6.5 million barrels a day from 1.5 million barrels a day in early September, ship tracker Kpler said.

A crucial dynamic oil traders are watching is whether Saudi Arabia can maintain high export volumes through the Strait of Hormuz while simultaneously resuming shipping from Yanbu, said Hamad Hussain, a senior economist at Capital Economics.

If elevated Gulf shipments hold steady as Yanbu operations recover, overall Saudi oil exports could surpass pre-attack levels, which would, in turn, help reverse recent crude-price increases, he said.

"However, exporting from Yanbu is more challenging than it was earlier in the conflict given the threat posed to energy infrastructure by the Houthis," Hussain said.

Saudi Aramco, the kingdom's flagship oil company, started loading vessels with crude at the Red Sea port of Yanbu via the pipeline on Sunday, the people familiar with the matter said.

Aramco is operating the pipeline at a throughput rate of around 3.5 million barrels a day, the people said. Part of the current flows will be directed to domestic refineries, they said.

Aramco didn't immediately respond to a request for comment.

Oil prices pared gains on Monday after news of the pipeline shipments broke but remained elevated, with Brent crude, the international benchmark, still above $105 a barrel.

Before the Iran war, Saudi Arabia sent most of its oil exports through the strait and onward to customers in Asia. As Iranian attacks on ships choked off that waterway, the kingdom shifted millions of barrels through its East-West Pipeline to Yanbu.

When the Iran-backed Houthi militants stepped up attacks on Saudi-linked shipping around the Bab al-Mandeb in July, some Saudi cargoes were rerouted north through Egypt, using the Suez Canal and Sumed pipeline system instead.

With its Red Sea bypass route disrupted by the attacks, Aramco began loading more oil onto tankers in the Persian Gulf and taking its chances by sending them through Hormuz despite the threat of Iranian attacks. The company told several of its customers in Asia-its most important oil market-to pick up shipments just outside the strait off the coast of Oman, The Wall Street Journal reported.

 

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