Key facts
- Saudi Arabia is rerouting approximately 100 million barrels of crude oil to Asia via the Strait of Hormuz.
- The rerouting is a response to partial shutdown of the East-West pipeline following drone attacks.
- War-risk insurance premiums for Red Sea voyages have tripled, approaching costs for Hormuz.
- The East-West pipeline, with a capacity of 4 million barrels per day, has been restarted at reduced rates.
- Some 60 commercial vessels transited the Strait of Hormuz on Wednesday, carrying about 22 million barrels of oil.
- About 40 of those vessels coordinated with the US military for protection.
Saudi Arabia is rerouting approximately 100 million barrels of crude oil to Asia through the Strait of Hormuz due to issues with its East-West pipeline, which was partially shut down by drone attacks. This shift forces a return to Persian Gulf loadings and ship-to-ship transfers near Sohar, Oman, significantly increasing shipping costs and war-risk insurance premiums.
Premiums for Red Sea voyages have tripled to around 3% of a vessel's value, approaching the 6% to 9% costs associated with Hormuz. Some voyages from southern ports could incur up to $7 million in insurance, compared to $100,000 before the current conflicts.
The East-West pipeline, designed to bypass Hormuz and capable of moving 4 million barrels per day, has been restarted at reduced rates, but Yanbu crude loadings had not yet resumed as of Thursday. The disruption has led Aramco to sell crude from Ras Tanura, moving it through Hormuz, with Asian buyers taking the majority of these September and October loadings. Some European term customers were informed they would receive no Saudi crude in October.
While shipping companies see a practical difference between the two chokepoints, both routes present challenges. U.S. forces have provided some aerial support around Hormuz, but no comparable protection is operating in the Red Sea, where Houthi threats to Saudi-linked vessels around Bab el-Mandeb add another layer of risk. On Wednesday, some 60 commercial vessels transited the Strait of Hormuz, carrying about 22 million barrels of oil, with about 40 of those vessels coordinated with the US military for protection.