The kingdom has been forced to work around two conflict zones to get its oil to Asia
Ships sail along Egypt's Suez Canal as the canal and an Egyptian port emerge as Saudi Arabia's latest alternative for its oil.
Global conflict is complicating Saudi Arabia's ability to ship its oil through its usual channels. Now, the country is pivoting toward yet another workaround, this time looking north to the Mediterranean Sea to export its crude.
Loadings at the Egyptian port of Sidi Kerir, about 20 miles west of Alexandria, have picked up as Saudi Arabia races to offer its oil to buyers mostly from Asia through a lengthier, and more expensive, backdoor than the kingdom's Red Sea route. Saudi Arabia began relying more on its Red Sea route after the Strait of Hormuz closed amid the war in Iran.
That imperfect solution became a necessity after Iran-backed Houthis attacked at least one Saudi oil tanker in the Red Sea early last week, making good on a threat to choke more Middle East oil and compounding worries about global crude supplies as the U.S. war with Iran entered its sixth month.
The trip from Sidi Kerir through the Mediterranean Sea, around Africa's Cape of Good Hope and out to Asia adds some 20 to 30 days to voyages, depending on their final destination in Asia. Charter rates for the so-called Very Large Crude Carriers, the most-watched vessels in the oil trade, have surged during the conflict, at times tripling from about $100,000 a day in peacetime.
The threat to the Red Sea route puts at risk millions of barrels of Saudi oil that have been reaching markets despite the war, as it has been a major export alternative to bypass shipping through the Strait of Hormuz. While Saudi Arabia's route though Egypt throws a lifeline to Asian buyers, it cannot fully replace Red Sea exports.
Egypt's SUMED pipeline carries oil from a Red Sea port to Sidi Kerir, where loadings climbed to 1.3 million barrels per day last week, a 17-week high, Matt Smith, an analyst with maritime data company Kpler, said Tuesday.
Crude exports from the Red Sea port of Yanbu, at the end of Saudi Arabia's East-West pipeline, dipped to a 19-week low last week to just under 3 million barrels per day across the week, he said.
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"We are starting to see some tankers switch off their AIS to load at Yanbu as they try to disguise their activities given the heightened risk involved with passing through Bab el-Mandeb," he said, referring to ships' real-time, GPS-like identification signals.
Some activity out of the Red Sea port continues, however. The Wall Street Journal reported earlier Tuesday that the Houthis gave safe passage to at least four Chinese oil tankers carrying Saudi oil through the Bab al-Mandeb Strait, which has been under threat by the group.
Volumes through Sidi Kerir were bolstered in recent days by the redirected Saudi crude flows and also by the brief window that opened up flows out of the Strait of Hormuz in late June as the U.S. and Iran signed a deal to halt hostilities for 60 days.
That was short-lived, however, and the conflict resumed, with the U.S. and Iran trading fire for more than 10 days in a row.
Saudi Arabia is also rerouting some of its oil through the Suez Canal. That route adds another complication: fully laden Very Large Crude Carriers cannot navigate through the canal, which means that exporters have had to transfer their cargo to smaller Suezmax tankers or partial loadings and unloadings via the SUMED pipeline.
VLCCs are the 18-wheelers of the crude world, able to carry about 2 million barrels of oil; Suezmax ships carry half of that.
Meanwhile, oil futures prices fell further on Tuesday as investors hoped for deals that could prompt a return of Strait of Hormuz shipping. Prices topped $100 last week after the Houthi attacks.
President Donald Trump said that the U.S. is holding "deep" talks with Iran, which Iranian authorities denied. In addition, Iran and Oman reportedly are trying to reach an agreement to resume transits through the strait.
New York-traded West Texas Intermediate (CL00) fell under $80 a barrel, down 5%, and London-traded Brent (BRN00) dropped more than 5% to trade at $81.32 a barrel.
Oil-tanker traffic through the Strait of Hormuz, through which about a fifth of global crude and crude products flowed through in peacetime, has ground to a halt in recent days.
Maritime-data company Windward said Tuesday that it recorded no oil tankers crossing Hormuz on Monday in either direction, with some ships crossing undetected carrying Iranian crude for China. A handful of cargo and dry-bulk vessels made it through, it said.
Red Sea's Bab al-Mandeb tanker transits are down nearly 40% since the Houthis declared the Saudi blockade, Windward said.
Analysts at Goldman Sachs estimated in a recent note that Persian Gulf oil flows had edged down to 41% of pre-war levels.
-Claudia Assis
