Saudi Oil Exports Under Pressure as Middle East Tensions Escalate

The ongoing conflict in the Middle East has put significant pressure on Saudi Arabia's oil exports. The country relies heavily on two main routes for shipping crude oil to international markets, but both have been disrupted due to regional tensions.

One of these routes, the Strait of Hormuz, is a critical waterway that connects the Persian Gulf to the Arabian Sea and accounts for around 25% of global seaborne oil trade. Since the US and Israel launched joint strikes against Iran in February, traffic through the strait has been severely restricted.

Average daily oil shipments through the Strait of Hormuz have fallen from 20 million barrels per day to just a handful of vessels passing through on most days. This has led to concerns about the impact on global energy markets and prices.

As an alternative, Saudi Arabia had been exploring the use of its East-West Pipeline to transport oil to Yanbu Port on the Red Sea coast for shipment through the Bab al-Mandab Strait. However, this route too has come under pressure due to escalating hostilities between Saudi Arabia and Yemen's Houthi movement.

The Houthi group claimed to have carried out attacks on Saudi vessels passing through the strait in July, followed by further strikes against targets inside Saudi Arabia, including oil facilities. As a result, the East-West pipeline was shut down as a precautionary measure, causing concerns about the impact on global oil supply chains.

According to the International Energy Agency (IEA), global observed oil inventories fell by another 95 million barrels in August, eroding the inventory 'buffer' that has helped the global crude market absorb supply shocks. Since the end of February, inventories have declined by a cumulative 507 million barrels.