Saudi Arabia gives oil buyers Red Sea option due to crisis in Strait of Hormuz

Saudi Arabia is giving long-term oil customers the option of receiving their allocations for April via the Red Sea port of Yanbu as it prepares for lengthy disruptions in the Strait of Hormuz.

Buyers who choose Yanbu will only get a portion of their monthly supply due to constraints on how much crude the pipeline to the port can carry, said traders who have been informed by state-run Saudi Aramco. The other option is to receive oil from the Persian Gulf, but at the risk of not getting any if the strait remains closed, said the traders, who asked not to be named as they’re not allowed to speak to media.

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Aramco, the world’s biggest oil exporter, shipped 7.2 million barrels a day of crude last month, before Iran effectively blocked Hormuz, most of which was exported from its Gulf terminals of Ras Tanura and Juaymah. The Saudis have a 5 million barrel-a-day pipeline that runs across the country to the Red Sea, although export capacity at Yanbu may be smaller than that.

Aramco declined to comment.

The Saudis typically sell all of their oil via long-term contracts, the bulk of which goes to Asia. Sinopec, China’s biggest refiner, is cutting run rates by 10% to cope with the shortages, while Japan has started to release crude from its national reserves.

The choices reflect uncertainty over how long the conflict in the Middle East will last and when Hormuz might reopen. President Donald Trump’s shifting explanations of why the US went to war has left allies and adversaries unsure when he’ll seek to end it, and even if he does, Iran has shown little willingness to go along.

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If the war continues, the traders said that oil loaded at Yanbu and headed to Asia would likely be marketed on a delivered basis — which means Aramco handles the transport logistics — rather than being sold on the usual loading basis, where customers arrange the shipping themselves. The oil that refiners are being offered via Yanbu is only the Arab Light grade, they said.

Aramco has been ramping up shipments via Yanbu since the beginning of the war, now into its third week. The Saudi producer has also taken the unusual step of offering crude loaded from the port through spot market tenders. However, it’s now offering contracted supply from the Red Sea terminal.

Beyond Asia, some European refiners have reported receiving less contractual volumes of crude from Aramco. One major processor received no volumes for loading next month, while another was allocated less than what was requested.