Saudi Arabia ramps up oil exports through Mediterranean pipeline to avoid attacks in Red Sea — CNBC

RESOLVING THE LEDGER

Saudi Arabia has surged oil exports through a pipeline that stretches across Egypt to the Mediterranean Sea, as Riyadh looks for alternatives to the Red Sea since Iran's Houthi allies declared a maritime embargo of the kingdom.

Oil exports from Egypt's Mediterranean port of Sidi Kerir have more than doubled to about 2.3 million barrels per day in August compared to around 1 million bpd last month, according to data provided by the trade intelligence firm Kpler. The majority of those exports are Saudi crude, said Matt Smith, director of commodity research at Kpler.

"This isn't a short-term decision," Smith said. "This is a distinct change in strategy or dynamics."

Sidi Kerir is connected by a pipeline, called the Sumed, to the Red Sea port of Ain Sokhna. Supertankers are too heavy to transit the Suez Canal fully loaded. They pump half the Saudi oil cargo into the pipeline at Ain Sokhna, transit the canal, and pick it up at Sidi Kerir, Smith said.

Oil shipment routes and pipelines in the Middle East CNBC The Saudis are under pressure as Iran and its allies pressure the major oil chokepoints in the Middle East. Riyadh has rerouted millions of barrels per day through a pipeline from its eastern region to its Red Sea port of Yanbu as Iran has choked traffic through the Strait of Hormuz this year.

But Houthi attacks on Saudi tankers in the Red Sea are now pressuring exports from Yanbu through the Bab el-Mandeb Strait.

"It is a big dislocation that is happening here," Smith said. "It's clear that the Saudis are not taking this lightly, and they're expecting it to be a new trend."

Saudi exports from Yanbu through the Bab el-Mandeb Strait were down nearly 90% to 1.3 million barrels during the week of Aug. 3., compared to 11 million barrels for the week of July 20 when the Houthis declared the embargo, according to Kpler data.

Tankers carrying Saudi crude in the Red Sea are often sailing with their transponders off to avoid Houthi attack, so it is difficult to get a precise picture of the oil flows. But Saudi Aramco CEO Amin Nasser made clear earlier this month that Riyadh has alternatives to the southern Red Sea and Bab el-Mandeb Strait.

"We have optionality, as you know, through multiple access routes and alternative pathways to the Mediterranean through Sumed pipeline and the Suez Canal," Nasser said on Aramco's Aug. 4 earnings call.

But tankers have to take a longer and more expensive journey around Africa to the customers in Asia that Saudi Arabia typically supplies. The journey is about 25 days longer than exporting through the Bab el-Mandeb, Nasser said on the call.

Most of the oil exports from Sidi Kerir are heading to the U.S. and Europe rather than Asia, Smith said. This appears to be a sign that Asian customers are selling the cargoes because its "not cost effective for them to take it all the way around Africa," the analyst said.

"We're getting a domino effect here," Smith said. "Europe is getting more crude from Saudi, so maybe we see West African crude, that would go into Europe, now going to go to Asia."

But redirecting Saudi flows through Egypt is unlikely to completely remove the risk of attack. Drones struck two liquefied natural gas ships at Egypt's Port of Damietta on July 30. Nobody has claimed responsibility for those strikes.

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Saudi Arabia ramps up oil exports through Mediterranean pipeline to avoid attacks in Red Sea — CNBC | AIPROPX