Saudi Arabia is in the early stages of starting up a key oil pipeline that has enabled Riyadh to bypass the Strait of Hormuz after the conduit was halted earlier this month, people familiar with the matter said.
The kingdom is building pressure on the line and aiming for a meaningful restart of flows by September 26, one of the people said, asking not to be identified because the information isn’t public. It’s also targeting a resumption of exports later this week, another person said. Multiple oil traders said there were already signs of tankers arriving at the port of Yanbu, from where the piped supply is exported.
Saudi Aramco and the nation’s oil ministry didn’t respond to requests for comment.
A restart will bring some relief to a market that’s been short of supply, with crude extending declines below $100 a barrel on September 22. When the pipeline was shut down, the kingdom pivoted its exports back to the Persian Gulf, with millions of barrels seen loading at the giant Ras Tanura terminal in recent days.
The resumption of the East-West line will allow Aramco to pick up exports again from Yanbu, which it has been using during the Iran war for the bulk of its shipments with the Strait of Hormuz heavily disrupted. The company has informally told some Asian refiners that they will soon be able to pick up oil from the Red Sea port, traders familiar with the matter said.
Still, risks remain on that route as the Yemen-based Houthi militants have continued their campaign by striking Saudi infrastructure. A refinery in the kingdom’s southwest was targeted while air-raid alerts were issued for Riyadh Saturday, the first in the capital since the height of the U.S.-Iran war in March and April.
The East-West pipeline has the capacity to transport 7 million barrels a day of oil, with about 2 million going to refineries along the kingdom’s west coast. Following shutdowns, companies typically need to first increase pressure, and test structural integrity and devices such as valves before resuming flows.
Since the pipeline was hit by drones launched from Iraq on September 10, state-run Aramco had been racing to bypass a damaged pumping station along the route to restore flows partially, and was seeking to return the link to its full capability in about six weeks, Bloomberg has reported. The pace of the ramp-up will depend on how quickly Aramco can repair the damaged station.
Of the pipeline total capacity, about 2 million goes to refineries along the kingdom’s west coast and the remainder is available for exports. The link had become such a lifeline that the impact of the shutdown has rippled through markets.
Saudi Aramco told at least two European refiners that they won’t be allocated any crude in October under long-term agreements, according to people familiar with the matter. Poland’s Orlen SA has already been hunting for replacements, helping drive up prices of European oil grades. Dated Brent, the benchmark for real-world barrels in the continent, topped $130 at one point.
For customers in Asia, however, Aramco has been boosting supplies through the embattled Strait of Hormuz. The company has sold tens of millions of barrels for delivery this month and the next with clients collecting just outside the waterway. Over the weekend, supertankers with the capacity to collect 14 million barrels of oil were observed at Saudi Arabia’s export installations in the Gulf, according to data from the European Union’s Sentinel 2 satellite.
As Hormuz turned almost impassable early in the war, Saudi Arabia swiftly changed direction to move its oil to the Red Sea coast through the 1,200-kilometer East-West pipeline that runs across the breadth of the Arabian Peninsula. There it emptied out the crude at the port of Yanbu, and supplies through the Red Sea helped keep oil-price surges in check at the peak of the conflict.
That route, however, has also come under threat in recent weeks from Yemen’s Houthi militants, who have attacked Saudi ships and energy infrastructure inside the kingdom. Saudi Arabia’s total oil exports dived to just about 3 million barrels a day in August, the lowest in at least nine years. A refinery at Jazan in the country’s south was knocked out in July while Yanbu itself has been attacked.
This isn’t the first time the pipeline was targeted. A pumping station was attacked in April, though oil flows were able to continue, and full supply was restored within days. The pipeline and major Saudi oil fields were also targeted in 2019 as tensions flared with Iran and the Houthis.
