Saudi Oil Exports Face Geopolitical Headwinds

Saudi Arabia's oil exports are facing significant challenges due to various geopolitical events. After Iran shut down the Strait of Hormuz in February, Saudi Arabia quickly redirected its oil flows to the Red Sea. However, this route has become increasingly difficult due to the Houthi blockade, which has led Saudi to reroute its oil shipments to Egypt.

Two LNG tankers were recently struck by drones at the Egyptian port of Damietta, further complicating the situation. OPEC's top producer is running out of options to redirect its oil exports, and current capacity and security limits are being pushed to their limits.

Saudi Arabia had successfully redirected some of its onshore Arab Light volumes from the Persian Gulf in March to the western shores via the Petroline, increasing Yanbu's oil exports by 330% compared to pre-war levels. However, this growth was short-lived, and loadings at Yanbu have declined significantly since June.

The Suez Canal and the SUMED pipeline are now the only remaining maritime routes for Saudi Arabia to export its oil from the Middle East. With a capacity of 2.5 million barrels daily, it would be physically impossible for Saudi Arabia to shift all of its oil flows to this conduit, but it could potentially reroute half of them.

The situation is further complicated by the fact that other countries have reserved some of the SUMED pipeline's capacity earlier, and the Suez Canal can only handle about 1 million barrels daily. Analysts warn that Saudi oil flows would shrink in the coming weeks unless the Yemeni Houthis lift their blockade, which appears unlikely at this point.