Saudi Arabia’s workaround for the Strait of Hormuz now carries a war-risk insurance bill nearly as expensive as sending tankers through Hormuz itself.
Quoted premiums for Saudi-linked tankers calling at the Red Sea port of Yanbu have tripled to around 3% of a vessel’s value from less than 1% in early July, according to Reuters. At Saudi ports farther south, including Jizan, quoted premiums can reach 7%. Hormuz voyages are running between 6% and 9%.
That adds millions of dollars to every cargo.
A voyage from Yanbu can carry roughly $3 million in war-risk insurance. The bill can reach $7 million from ports farther south or through Hormuz, compared with at least $100,000 before the war. Charter rates are running at least $500,000 per day, with bunker fuel adding another $100,000 or more.
Saudi Arabia spent billions building the East-West pipeline specifically to avoid relying on Hormuz. The line had been moving roughly 4 million barrels per day across the kingdom to Yanbu after Iranian restrictions slashed traffic through the strait.
Drone attacks shut the pipeline earlier this month. Aramco has since restarted it at reduced rates, although Yanbu crude loadings had still not resumed as of Thursday, despite previous reports that loadings had been scheduled.
The outage pushed Saudi Arabia back toward the Persian Gulf. Aramco sold roughly 60 million barrels for September and October loading from Ras Tanura, with crude moving through Hormuz for ship-to-ship transfers near Sohar. Asian buyers took much of that oil, while some European term customers were told they would receive no Saudi crude in October.
The Red Sea route has its own problem: the Houthis have threatened Saudi-linked vessels around Bab el-Mandeb.
Shipping companies see a practical difference between the two chokepoints. U.S. forces have provided some aerial support around Hormuz in recent months, according to Reuters sources. No comparable U.S. protection is operating in the Red Sea.
Saudi Arabia now has two export routes carrying two different versions of the same problem: expensive ships, expensive insurance, and a lot less certainty about getting the barrel where it needs to go.
By Julianne Geiger for Oilprice.com
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