Red Sea: Saudi Arabia's new oil chokepoint

Saudi Arabia's Logistical Challenges in the New Geopolitical Context

For years, Saudi Arabia has had a simple strategic approach to dealing with any disruption in the Strait of Hormuz. If shipping volumes through the Persian Gulf are threatened, the solution is to pump oil through the East-West Pipeline to Yanbu on the Red Sea. The market has always seen this as a guarantee, while increasing Saudi Arabia's energy security and reducing dependence on Hormuz. However, current developments in the Red Sea, especially at Bab El Mandab, have exposed a serious weakness in this assumption.

Challenge From Bab El Mandab

The East-West pipeline does not solve the entire problem, because once crude oil reaches Yanbu, it still needs to leave the Red Sea. However, Bab El Mandab is currently blocked by a prolonged blockade by Houthi forces. The kingdom is facing a logistics challenge with significant geopolitical implications, as a shutdown could disrupt global oil markets and shift the strategic balance of power.

Temporary Solution: Suez Canal

There is a possibility that the tanker could travel north through the Suez Canal. In theory, this is an elegant choice, since the Suez Canal still operates, and Egypt also controls the SUMED pipeline. However, the reality is much more complicated. First, the Suez Canal is not designed to replace unrestricted access through Bab El Mandab for millions of barrels of Saudi Arabia's crude oil, refined products and petrochemical exports.

Transport Capacity of SUMED Pipeline

SUMED does not currently have the capacity to absorb a sudden and sustained diversion of millions of barrels per day from Yanbu. With the volume from Yanbu, the Kingdom will need nearly twice that capacity. SUMED also has existing commitments from other regional manufacturers and regular operational maintenance.

Consequences of Congestion

The first implications will be seen at Ain Sokhna, where each VLCC vessel that needs to be partially cleared before passing through the canal will take up berth space, storage facilities, pumping systems and loading equipment for a longer period. Congestion and demurrage charges will become a reality. A similar situation will occur at Sidi Kerir, where refueling is required.

Transport Quality Decreased

The Suez Canal would also be a barrier, as it is one of the world's busiest maritime corridors. Even after its expansions, the Suez Canal still operates within practical limits. Blockage will be inevitable if dozens of additional tankers start entering the canal each week.

Impact on the Global Energy Market

Saudi Arabia exports a large volume of refined products from Yanbu. These products are typically transported by Medium Range and Long Range cargo ships, which can transit the Suez Canal without having to rely on SUMED. However, these vessels will also compete for slots in the channel, adding to congestion and costs.

Rising Costs

For importers in Asia, the closure of Bab El Mandab and the Suez Canal has serious implications. China, India, Japan and South Korea account for the majority of crude oil exports from Saudi Arabia. Diverting through Suez and around the Cape of Good Hope would add thousands of nautical miles to each trip, extending transit time by up to 6-7 weeks.

Huge Economic Impact

These operational constraints reduce the flexibility and efficiency that modern oil markets depend on. Large investments have been made in expanding oil production, building pipelines and developing export ports. However, the gap in ensuring the safety of the maritime corridors connecting all of these is gradually becoming apparent.

Ultimately, this shift in thinking will shape the future of energy markets. The focus, previously primarily on production losses measured in barrels per day, will now shift to the actual ability of crude oil to reach consumers in a timely manner.

#SaudiArabia #Energy #BabElMandab #SuezChannel #Logistics #Geopolitics