Saudi Aramco Reroutes Oil Amid Attacks
Saudi Aramco is racing to reroute oil exports as attacks on its infrastructure intensify, including a recent drone strike on the Ras Tanura refinery that disrupted LPG shipments. The company is leveraging alternative pipelines to bypass the Strait of Hormuz as Gulf storage capacity nears its limit.
The Ras Tanura refinery, located on the Gulf coast, is the largest oil refinery in the Middle East, with a capacity to process 550,000 barrels per day. It is a critical hub for both refining and exporting Saudi Arabia's crude oil, making it a high-value target for disruptive attacks. The primary chokepoint being bypassed, the Strait of Hormuz, handles about 20% of the world's total oil consumption, with an average of 20 million barrels passing through daily. Its effective closure due to regional conflict has sent shipping and insurance costs soaring and forced a scramble for alternatives. Saudi Arabia's main alternative is the 1,200-kilometer East-West Pipeline, which can carry about 5 million barrels per day from the eastern Abqaiq processing center to the Red Sea port of Yanbu. This allows tankers to bypass both the Strait of Hormuz and the Bab el-Mandeb strait, another vulnerable point for shipping. This is not the first time Saudi oil infrastructure has been targeted. A 2019 drone and missile attack on the Abqaiq and Khurais facilities temporarily cut the kingdom's output by 5.7 million barrels per day, representing over half its production and 5% of global supply. The current escalation follows a pattern of attacks by Houthi rebels and represents a direct confrontation with Iran, which has warned vessels to avoid the strait. In response to the growing risk, maritime insurers have cancelled war risk coverage for the Gulf, leaving ships to anchor outside the strait. While the pipelines provide a crucial workaround, their capacity is limited and cannot fully compensate for a shutdown of the Strait of Hormuz. The combined bypass capacity of Saudi Arabia and the UAE is less than half of the volume that typically transits the strait. The disruption disproportionately affects Asian markets, which receive nearly 90% of the crude oil and condensate shipped through Hormuz. Major importers like China, India, Japan, and South Korea are the most exposed to the rerouting and potential supply shortages.
