Saudi crude export capacity faces yet another significant blow.
On Tuesday, during the U.S. afternoon trading session, shipping and industry sources indicated that Saudi Arabia's primary Red Sea oil export terminal, Yanbu, had suspended crude loading operations. Following the news, international oil prices extended gains, with U.S. WTI crude futures climbing above $106.50 per barrel intraday, expanding its daily gain to more than 5%. Meanwhile, Brent crude rose to above $109 per barrel, up over 3% on the day.
Reuters subsequently reported, citing trade and shipping sources, that Saudi Arabia had halted crude loadings at the Yanbu port and cancelled some cargoes destined for European clients. Market concerns over further constraints on Saudi crude export capacity have visibly intensified.
This development follows the recent closure of the kingdom's East-West Pipeline after a drone attack, a vital artery that links eastern oil fields to the Red Sea port of Yanbu and serves as a crucial alternative route bypassing the Strait of Hormuz. If loadings at the Yanbu port are now also affected, it implies that Saudi Arabia's alternative export pathway of moving crude from the Persian Gulf to the Red Sea and then onward for export has encountered additional disruptions.
Yanbu Loading Suspension Deals Another Blow to Saudi's Hormuz Bypass Route
Yanbu stands as one of the most critical oil export terminals along Saudi Arabia's Red Sea coast, marking the western terminus of the East-West Pipeline.
Previously, in response to shipping risks in the Strait of Hormuz, Saudi Arabia had significantly increased the volume of crude transported via the East-West Pipeline to Yanbu. Reuters data showed that in early September, crude and condensate loadings at Yanbu had rebounded to approximately 3.7 million barrels per day, notably higher than August levels.
The pipeline, stretching roughly 1,200 kilometres, is designed with a maximum transport capacity of around 7 million barrels per day, with a significant portion of that crude capable of being routed to the Red Sea port, thereby circumventing the Strait of Hormuz.
However, last week, the East-West Pipeline was forced to shut down following a drone attack. The Associated Press reported that the pipeline is expected to remain largely inoperative for a considerable period, with repairs potentially taking weeks. Reuters noted that the disruption could affect a substantial portion of global oil supplies.
Against this backdrop, any further suspension of loading operations at the Yanbu port itself would further restrict Saudi Arabia's ability to export via the Red Sea route.
In other words, previously the concern was that oil could not reach Yanbu; now the market worries have evolved into a scenario where even if crude arrives at Yanbu, it may struggle to be loaded for export.
Saudi Supply Pressures Extend to European Clients
Reuters reported that Saudi Aramco has notified some European customers of cargo cancellations, prompting major buyers, including a Polish refiner, to urgently source alternative supplies. Trade sources indicated that prices for the affected cargoes have surged above $120 per barrel.
This shift demonstrates that the disruption to Saudi exports is gradually transmitting from the transportation segment to actual trade flows.
Previously, Saudi Arabia could mitigate the impact of the East-West Pipeline closure by adjusting export destinations, increasing shipments via the Strait of Hormuz, and utilising inventories as buffers. However, if the loading suspension at the Yanbu port persists, the alternative export capacity available for Saudi Arabia to deploy will be further diminished.
The Wall Street Journal previously cited analysts as saying that the buffer provided by Yanbu's inventories may only last a few days. If the repair of the East-West Pipeline takes weeks, the pressure on Saudi crude exports would intensify considerably.
Meanwhile, the Houthi militant group's military advances along Yemen's Red Sea coast have added another layer of risk to the other end of Saudi Arabia's Red Sea export route. Recent Houthi pushes towards the Bab el-Mandeb Strait have rendered this shipping route, originally intended to bypass the Strait of Hormuz, similarly exposed to security threats.
Both Hormuz and Red Sea Corridors Under Pressure, Oil Prices Re-Surge
The market's primary concern is that Saudi crude exports are being curtailed simultaneously at multiple critical chokepoints.
On one front, shipping volumes through the Strait of Hormuz have dropped significantly recently, with Iran continuously emphasising its control over the strait. On the other front, the closure of the East-West Pipeline following the attack, coupled with the suspension of loadings at Yanbu and the threat of Houthi attacks, has compromised the Red Sea export corridor that was meant to serve as the Hormuz bypass.
As news of the Yanbu loading suspension emerged, intraday gains in oil prices continued to widen. During Tuesday's U.S. afternoon trading, WTI crude rose over 5%, hitting an intraday high not seen since early May, with both WTI and Brent on track to close at their highest levels in roughly four months.
Reuters noted that the suspension of loadings at Yanbu, partial production halts at Libyan oilfields, and a notable decline in shipping through the Strait of Hormuz have collectively intensified market concerns over disruptions to global crude supplies.
With limited buffer in global crude inventories, if the East-West Pipeline fails to recover quickly, the Yanbu loading suspension continues, and shipping risks in both the Strait of Hormuz and the Bab el-Mandeb Strait escalate further, market anxieties over Saudi Arabia's actual exportable crude volumes may deepen even more.
From the Strait of Hormuz to the Red Sea, the two vital lifelines for Saudi crude exports are simultaneously under strain.
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