The effective closure of the Strait of Hormuz, a critical artery for global oil supply, has prompted Saudi Arabia to activate a decades-old contingency plan. The Kingdom is now relying heavily on its East-West pipeline to maintain exports, offering a crucial, though limited, buffer against escalating energy market disruptions. This strategic maneuver underscores the vulnerability of global oil infrastructure and the potential for sustained price volatility amid heightened geopolitical tensions.
The 1,200-kilometer pipeline, originally constructed during the Iran-Iraq war, connects Saudi Arabia’s eastern oil fields to the Red Sea port of Yanbu. While not a complete solution – it can handle up to seven million barrels per day, but current exports are significantly lower – the pipeline is proving vital in mitigating the impact of disruptions in the Persian Gulf. The situation highlights the importance of long-term strategic planning in the energy sector, with infrastructure built decades ago now playing a central role in navigating a major global crisis.
Ship-tracking data reveals a significant surge in crude exports from Yanbu. Exports have averaged approximately 3.6 million barrels per day over the past five days, peaking at over 4 million barrels per day, according to reports. This represents roughly half of Saudi Arabia’s pre-crisis export capacity, providing a critical lifeline as approximately 20 million barrels per day – about one-fifth of global oil consumption – typically transits the Strait of Hormuz. Analysts suggest this alternative route has helped prevent a more severe spike in oil prices, with Brent crude trading above $110 per barrel following recent escalations.
Yanbu Under Threat: Vulnerability Remains
Despite the success in rerouting oil, the workaround is not without its risks. Infrastructure at Yanbu has already been targeted by attacks, demonstrating the vulnerability of even alternative supply lines. On Thursday, a drone struck the port’s Samref refinery, and a ballistic missile was intercepted, actions taken in response to earlier bombardments of Iran’s South Pars gas field. This underscores the potential for further disruptions and the require for heightened security measures. Vessels utilizing the Yanbu route also face navigating the Bab el-Mandeb Strait, another strategically important and potentially vulnerable chokepoint.
Shipping Costs Surge as Demand Rises
The shift in export routes has also led to a significant increase in shipping costs, as tanker demand rises and operators scramble to reposition vessels. Saudi Arabia’s ability to sustain current export levels will depend not only on the pipeline’s capacity but also on the availability of shipping and the continued security of export routes. The crisis has highlighted the interconnectedness of global energy markets and the ripple effects of geopolitical instability.
Regional Efforts to Diversify Export Routes
Beyond Saudi Arabia, other regional producers are exploring options to diversify their export routes. The United Arab Emirates and Iraq have partial bypass routes, while Oman is positioning its Duqm port as a potential alternative hub. However, these solutions are limited in scale and face logistical and security challenges. The activation of the East-West pipeline is seen as a “strategic masterstroke,” but its long-term viability depends on sustained security and investment.
What’s Next for Global Oil Supply?
The current crisis marks a turning point for global energy markets, with both short-term and structural implications. In the near term, markets will remain highly sensitive to developments around the Strait of Hormuz. If the waterway remains closed, Saudi Arabia and other producers will continue to rely on alternative routes, though these are unlikely to fully compensate for lost capacity, suggesting ongoing supply tightness and a sustained geopolitical risk premium in oil prices. Attention will also focus on the resilience of these backup systems, with any sustained disruption to Yanbu or the pipeline representing a major escalation.
Over the medium term, the crisis is likely to accelerate investment in energy infrastructure designed to reduce reliance on chokepoints, including pipelines, storage facilities, and diversified export routes. Governments may also increase strategic stockpiling, recognizing the risks of concentrated supply. The key question for markets is whether this crisis represents a temporary disruption or the beginning of a more persistent shift toward higher structural oil prices, particularly if geopolitical tensions remain elevated.
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