Saudi Oil Reroute Costs Billions as Houthi Embargo Cripples Red Sea Lifeline
Saudi Arabia's oil exports are facing another major disruption due to the Houthi maritime embargo in the Red Sea. Tankers that would normally pass through the Red Sea are now sailing thousands of extra miles around Africa, increasing fuel costs and insurance premiums.
The East West Pipeline, which was meant to be a backup plan for Saudi oil exports, is also maxed out. The pipeline can only load 1.5 million barrels per day onto tankers, while the pipeline is running at nearly 7 million barrels per day. This bottleneck forces Saudi Arabia to send tankers on the longer route around Africa.
The cost of moving Saudi crude has doubled, with tanker freight rates surging as vessel owners demand more money for the extra time, fuel, and risk. Some shipping companies are refusing to sail into the Red Sea due to war risk insurance costs rising. Underwriters reassessed Saudi port risk profiles within 24 hours of the Houthi embargo announcement.
The disruption has pushed Brent crude prices above $91 per barrel as traders price in the new reality. An estimated 20-30% of Red Sea-bound Saudi tankers have already diverted, representing barrels that will arrive later and cost more to deliver.