In this post, we explore the implications of Saudi Arabia’s new oil transit route. This route, while innovative, presents various challenges and considerations. Understanding its complexities requires a closer look at the details, including its capacity limitations and the geopolitical threats that linger. Let’s delve deeper into the subject.
Yves here. I wish this discussion on the new Saudi oil transit route included maps, but I believe you can grasp the main idea without them. It’s important to note that several key factors are missing from the conversation. Firstly, the Yanbu port cannot accommodate all of Saudi Arabia’s pre-war export levels. Although reports suggest it is limited to 4 million barrels per day, it seems they are managing closer to 5 million barrels per day at present, indicating improvements in operations. However, this still falls short of the previous daily export rate, which was approximately 7 million barrels.
Secondly, Ansar Allah, the Houthi movement, has already targeted Yanbu and the pipeline, making it overly optimistic to assume this route will remain uninterrupted.
Lastly, I have heard (though I can’t recall the source) that Ansar Allah can strike a tanker in the Suez Canal. Since Very Large Crude Carriers (VLCCs) must partially offload their cargo via pipeline to ensure adequate draft for canal transit, this could result in significant delays.
Thus, this post seems aligned with the “Mission Accomplished” mentality.
Expert readers are encouraged to share their thoughts.
By Leon Stille, an independent energy expert and director of New Energy Institute, with co-ownership of Hovyu BV, and various teaching positions at universities of applied sciences and international business schools. Originally published at OilPrice
- Transporting Saudi crude to Asia via Yanbu, the SUMED pipeline in Egypt, and around the Cape of Good Hope can add approximately $5 per barrel and up to four additional weeks to the shipping time.
- This premium pales in comparison to the economic fallout associated with losing access to either the Strait of Hormuz or Bab el-Mandeb entirely.
- Saudi Arabia’s alternative export facilities are not temporary solutions but rather strategic assets—albeit they do not negate the kingdom’s urgent need to diversify beyond oil.
The latest oil route in Saudi Arabia looks quite peculiar on a map.
Crude oil travels west across Saudi Arabia to Yanbu, moves north through the Red Sea, then passes through Egypt across the SUMED pipeline from Ain Sokhna to Sidi Kerir, before tankers navigate the Mediterranean and sail around the Cape of Good Hope to reach clients in Asia.
Oil that begins relatively close to Asia ends up traversing thousands of kilometers in the opposite direction.
This detour reportedly incurs an additional cost of around $5 per barrel when considering freight, fuel, insurance, and pipeline fees. For a two-million-barrel cargo, the additional charge can amount to nearly $10 million. Consequently, Aramco is considering a separate pricing mechanism for crude loaded from Egypt’s Mediterranean port of Sidi Kerir, as the standard Asian official selling price no longer accurately reflects the logistical realities.
The immediate conclusion is that circumventing Hormuz has rendered Saudi oil inherently more expensive.
This truth, however, overlooks a more crucial insight.
The $5 per barrel charge reflects not only the cost associated with disruption but also the advantage of an alternative route, considering the increasing vulnerability of two major global shipping chokepoints.
Two Chokepoints Transforming One Contingency Route into Another
Saudi Arabia’s primary defense against disruptions in the Strait of Hormuz is its East-West Pipeline, which transports crude from the eastern producing region to Yanbu, completely bypassing Hormuz.
This system has proven its value. In fact, Aramco claims to have maximized the pipeline’s capacity at 7 million barrels per day during the first quarter of 2026. Roughly 2 million barrels per day are directed to western refineries, leaving around 5 million barrels available for export.
However, transporting oil to Yanbu only addresses the initial geographical challenge. Typically, Asian buyers would ship those cargoes south through the Red Sea and exit via Bab el-Mandeb. However, Houthi threats and attacks have made that route increasingly unreliable.
Therefore, the newer workaround does not completely bypass the Red Sea, despite some viral narratives. It utilizes the northern Red Sea between Yanbu and Ain Sokhna, avoiding the Houthi-threatened Bab el-Mandeb by going through Egypt and into the Mediterranean.
From that point, the vessel still faces a lengthy journey. It must exit the Mediterranean through Gibraltar, navigate around Africa, and cross the Indian Ocean to reach Asia.
Reuters has calculated that the journey to Asia may extend from approximately 19 days to 48 days. The fuel costs for a tanker can escalate from about $1.26 million to $2.87 million, plus an additional $1 million in Suez Canal fees. Fully loaded VLCCs might also be required to discharge part of their cargo into the SUMED pipeline before transiting the canal, only to reload it at Sidi Kerir.
None of this is either affordable or efficient.
However, the relevant alternative is not the old route operating seamlessly; it’s a delayed shipment versus no shipment at all.
The $5 Premium Is Negligible Compared to the Risks It Mitigates
Oil markets typically evaluate the efficiency of infrastructure in terms of cents per barrel. In stable conditions, that perspective is logical. Producers compete on transport expenses, crude quality, and refinery margins, while buyers strive to optimize routes aggressively.
Geopolitical resilience, however, operates under different economic principles.
While an additional $5 on an $85 barrel signifies a notable cost increase, it pales in comparison to the price surges, refinery shortages, and revenue loss stemming from significant supply interruptions. During recent disruptions, Saudi exports fell by about 2.4 million barrels per day year-on-year, while Gulf exports plummeted to just 36% of pre-war levels.
Even more importantly, the risks don’t vanish simply because both straits reopen.
Iran doesn’t need to close Hormuz permanently to exert influence over shipping. Mines, drone strikes, seizures, or even credible threats can inflate insurance costs and deter shipowners from setting sail. The Houthis have similarly demonstrated their capability to disrupt Red Sea traffic using relatively inexpensive weaponry.
A reopened chokepoint is not equivalent to a reliable chokepoint.
This reality shifts the valuation of the detour. The alternative route can be likened to spare capacity in an electrical system or a secondary supplier in an industrial supply chain. It may appear costly when all is functioning correctly, but its value becomes evident only when the primary route fails.
Saudi Arabia has maintained such optionality better than many producers. Despite significant regional disruptions, Aramco reported 98.4% supply reliability in the second quarter—a result of the East-West Pipeline, storage capabilities, alternative terminals, and its international logistics network.
The $5 premium is part of the expense of maintaining that level of reliability.
Redundancy Is Now an Integral Part of the Barrel
An important shift is occurring: Aramco may now need distinct pricing formulas for the same crude based on where it is loaded and how it reaches end-users.
Official selling prices (OSPs) are the monthly differentials that producers apply relative to regional crude benchmarks. They generally reflect grade quality, market dynamics, and destination. A separate pricing formula for Sidi Kerir would explicitly incorporate logistical resilience into the price of the crude.
This scenario need not be a fixture for every shipment. If Hormuz and Bab el-Mandeb regain reliable navigability, the longer transport route will lose its market allure. Asian refiners are unlikely to pay extra costs for unnecessary voyages.
Nevertheless, the infrastructure shouldn’t be dismissed as obsolete the moment standard shipping resumes. Saudi Arabia is already looking into increasing its east-west pipeline capacity by another 2 million barrels per day. Yanbu is shifting from a secondary outlet to a strategic export hub, while SUMED, the Suez Canal, Mediterranean storage, and flexible tanker arrangements add even further options.
The lesson from 2026 is that relying on a single efficient route can be more costly than maintaining several suboptimal ones.
This insight will influence investment decisions far beyond Saudi Arabia. Pipelines, terminals, and storage facilities previously assessed as underutilized may gain a resilience premium. Buyers may be more willing to accept higher costs for supply contracts that incorporate genuine routing flexibility. Insurers and lenders will increasingly differentiate between producers that possess contingency infrastructure and those whose exports rely on a singular, exposed waterway.
The outcome is a higher structural logistics cost for certain barrels, even if benchmark oil prices decline.
Improved Oil Logistics Do Not Resolve Saudi Arabia’s Larger Issues
However, excess celebration of resilience carries its risks.
Saudi Arabia can invest billions to make oil exports less susceptible to interruptions, yet it cannot ensure that global oil demand will remain strong. Electric vehicles, improved efficiency, alternative energy sources, and climate policies will gradually diminish demand growth. Ultimately, the kingdom requires business strategies that do not hinge on continually increasing crude exports.
Riyadh is aware of this challenge. According to its Vision 2030 annual report, non-oil sectors contributed 55% to the nation’s real GDP in 2025, while non-oil government revenue has seen considerable growth since 2016. Investments in tourism, logistics, mining, manufacturing, technology, and renewable energy aim to lessen the economy’s reliance on oil.
It is crucial not to confuse these indicators with complete diversification. Oil continues to be a critical component of exports, fiscal strength, and the financing of numerous non-oil ventures. Many flagship projects require substantial investment, and translating state-led initiatives into self-sustaining private activities remains a challenge.
Nonetheless, this is not a straightforward choice of either/or.
Saudi Arabia must safeguard its current oil revenue while leveraging it to build a future economy that will eventually rely less on it. Enhanced export infrastructure aids in fulfilling that initial goal, while Vision 2030 aims to achieve the latter.
The Cape route may impose an additional charge of $5 per barrel. That cost is visible.
The unseen value is that Saudi Arabia can continue to sell its crude even when the most direct routes are rendered unusable. In an oil market increasingly influenced by drones, missiles, and maritime chokepoints, redundancy is no longer wasted infrastructure; it has become an essential aspect of the product.
