Some Asian crude oil buyers are in discussions with Saudi Aramco over the possibility of rerouting crude shipments around Africa as security risks in the Red Sea intensify following Houthi attacks on tankers, according to traders familiar with the matter.
The refiners are mulling alternatives to using Bab el-Mandeb, the chokepoint at the southern end of the Red Sea, the traders said, asking not be named as talks aren’t public. These may include taking oil from the Egypt’s Sidi Kerir port in the Mediterranean, instead of the Saudi Red Sea hub at Yanbu, they said.
One option — if Asian buyers want to collect crude from the Mediterranean — could see Aramco moving oil from Yanbu to the Egyptian Red Sea port of Ain Sokhna, before it’s sent north via pipeline, the traders said. Alternatively, buyers may handle the Egyptian logistics after picking up from Yanbu.
India’s state-run refiners are weighing the alternative of sending crude through the Suez Canal using smaller ships, before transferring the cargo to very large crude carriers at a European hub for delivery to the South Asian nation by sailing around Africa, people familiar with the matter said. The companies have never used this route before.
Talks are ongoing and no decisions have yet been finalized, the traders said. Saudi Aramco declined to comment.
If cargoes originally planned on the shorter route — via the Red Sea, Bab el-Mandeb strait and onward to Asia — are rerouted, that would result in longer voyages via Egypt, and then around South Africa. That stands to lengthen journey times by as much as a month, the traders said.
Refiners in India are prepared to pay the higher freight charges for the more complex voyages because supplies remain tight, the people said.
The global oil market faces fresh turmoil after Iran-backed Houthi militants in Yemen said that they had struck two tankers in the Red Sea, expanding risks for regional energy flows after months of disruption. The Red Sea route has been a vital alternative for millions of barrels of crude that can’t go through the Strait of Hormuz because of the war between Washington and Tehran.
Oil futures rallied again on Thursday as traders sought to price in the implications of the attacks, which open a new front in the months-long conflict. Brent topped $98 a barrel, and is up by more than a third this month.
Sending oil through Egypt is typically how Saudi Arabia sells to customers west of the Suez Canal. Fully-laden very large crude carriers can’t pass through the waterway, meaning that smaller vessels or a pipeline are preferred.
Source: Bloomberg
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