Saudi oil can still get out — but it won’t be cheap or easy
Saudi Arabia faces a challenge rerouting oil exports due to Houthi attacks. An existing pipeline bypasses the Strait of Hormuz, but a new detour is needed. This new bypass requires additional pipelines and significant diplomatic efforts. The ki...
By Bloomberg | Updated:
Early on in the Iran war, a long-forgotten pipeline built across Saudi Arabia 40 years ago became a lifesaver for the global economy. The East-West conduit allowed the kingdom to bypass the Strait of Hormuz, keeping some of its oil flowing. Now that the Houthis of Yemen are trying to close an essential chokepoint for that workaround, the Saudis may need a bypass for the bypass.
Engineering a new detour that avoids the Bab el-Mandeb strait on the southern end of the Red Sea would be a tall task. It would require the use of one, perhaps two, extra pipelines, quite a lot of oil tankers and a good dosage of Middle Eastern cloak-and-dagger diplomacy to keep everything running despite the threat of missiles and drones. It won’t be easy — or cheap.
But it is possible. The good news is that the Saudis, who now export most of their oil from the Red Sea via the East-West bypass pipeline rather than through the Persian Gulf, have a natural way to avoid the strait. Rather than sending the oil south toward the chokepoint, the kingdom can push the barrels north. The bad news is that's not a simple as it sounds. Worse, arranging the new bypass is urgent: The Houthis made good on their threat to close the strait earlier this week, attacking two Saudi-flagged oil tankers in the southern Red Sea.
Going north means taking the Suez Canal to reach the Mediterranean Sea, and from there, the high seas. Putting aside the fact this route means Asia-bound ships emerge on the wrong side of the map, there’s still the problem of depth: The waterway is only an option for medium-sized oil tankers. The largest ones, uncreatively known as Very Large Crude Carriers, or VLCCs, and able to carry two million barrels, cannot sail the canal fully laden. That’s an issue because the VLCCs are the workhorse of the oil industry, carrying most of the Saudi crude. The only solution is to lighten the supertankers, so their draft is reduced.
Enter a new workaround: the 50-year-old Suez-Mediterranean pipeline, or Sumed, a 320-kilometer-long pair of pipes that connects Ain Sukhna, an Egyptian town at the north end of the Red Sea, with Sidi Kerir, a port near the Egyptian metropolis of Alexandria on the coast of the Mediterranean Sea.
Another set of pipelines, owned by Israel, offers a second option, also linking the Red Sea with the Mediterranean. Known as the Eilat-to-Ashkelon pipeline, it was built even earlier, in the 1960s, as a joint-venture between Israel and the country that would go to become its bitterest enemy: Iran. The pipeline became a cash machine for one of the best commodity traders ever born, Marc Rich, during the first oil crisis in 1973-1974. After the Iranian Revolution of 1979, the Israelis kicked the Iranians off the project. Can the Saudis use the Eilat-to-Ashkelon route to bypass the Houthi threat? In the past, it would had been unthinkable, as Riyadh doesn’t recognize the Jewish state. But desperate times may call for desperate measures. I wouldn’t rule it out, even if neither the Saudis nor the Israelis would never publicly admit to it. It helps that, to this day, the operations of the Eilat-to-Ashkelon pipeline are top secret.
Everyone in this conflict has a lot at stake. By threatening the Bab el-Mandeb, the Houthis are endangering the flow of more than 5 million barrels a day of Saudi crude that pass through the Red Sea — the supply that many in the commodity market credit as one of the reasons oil prices haven’t jumped to $200-a-barrel as some feared.
To keep the oil flowing, Saudi Arabia will likely resort to two systems — probably simultaneously. First, it can enlist a small armada of tankers to shuttle crude from its oil port in the Red Sea to the Sumed pipeline, a sort of conveyor belt of tankers. Asian refiners would simply pick up the crude on the other side, without their tankers having to cross the canal. The kingdom has already opened talks with some of these refiners to change the delivery of its crude from Yanbu to Sidi Kerir. The problem? The Sumed pipeline has a capacity of about 2.5 million barrels a day, roughly half of the current flow from Yanbu. Adding the Israeli pipeline would bring an extra 1.2 million barrels a day of transport capacity, narrowing — but not closing — the gap.
That’s where the second part of the Saudi plan could come into play. Supertankers could use the Sumed pipeline to offload part of their cargo, making it possible to navigate the Suez Canal with the rest. After emerging in the Mediterranean, they would pick up the rest on the haul other side of the pipeline. (The Saudis would likely also use some medium-sized oil tankers, called Suezmax, that can carry a million barrels across the canal without lightering.)
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Combined, the pipelines and tankers can do the trick — though the maneuver will be costly and logistically complex. The result: Much higher freight costs. Oil tankers heading to Asia would emerge in the eastern Mediterranean rather than near the Indian Ocean, adding 25 days to their trip from Saudi Arabia to Japan. The return trip would be lengthened by the same amount, tying up a huge number of tankers.
Whether the Saudis need to go all in on this bypass to the bypass, or just shift a few cargoes around, depends on what the Houthis do. Over the weekend, several tankers heading into China, Pakistan and India, which account for a large part of what the kingdom exports via the strait, crossed the chokepoint without any problem, with a few more heading on Monday morning in the same direction. The tankers typically broadcast on their location systems messages indicating their nationality. One, for example, said: “CHINA/FLAG/OWNR/CREW.”
Several others have also crossed with their location beacons turned off. Some tankers, however, have U-turned, heading north into the Red Sea. Regardless, geography makes a blockade easy: The Bab el-Mandeb strait, which lies between war-torn Yemen on the Arabian Peninsula and the poor African nations of Djibouti and Eritrea on the Horn of Africa, is around 14 nautical miles wide — narrower than the 21 nautical miles of Hormuz; its name roughly translates to “Gate of Tears” in recognition of its difficult navigational challenges.
The Houthis, who have been long equipped, trained and groomed by Iran, have closed the strait in the past, sinking several merchant vessels between 2023 and 2025. Back then the closure didn’t impact oil as the Strait of Hormuz was open. For the last year, a tenuous truce has allowed tankers and other commercial ships to cross. But earlier this week, the Houthis said in a statement that they would impose a naval blockade on Saudi Arabia, including foreign ships calling at the kingdom’s oil ports in the Red Sea. The blockade was announced days after Saudi Arabia bombed the airport of the Yemeni capital, Saan’a.
Since the Houthis made good on their threat on Wednesday night, oil prices have climbed back to $100 a barrel. As the industry scrambles to react, the countries most likely to be affected by the disruption are India, South Korea, China and Japan, which have loaded a significant amount of Saudi crude from Yanbu.
For more than 100 days, Saudi Arabia has successfully bypassed the Strait of Hormuz via its East-West pipeline. With that workaround now threatened it needs a new route. It exists, but is far less straightforward than the original detour. The more stopgap measures added, the bigger the risk — and the cost. Nothing replaces fully opening the Strait of Hormuz.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of economictimes.com.)
