Saudi Arabia has been preparing and planning for the worst-case scenario for decades. So within hours of the initial U.S. and Israeli attacks on Iran that effectively closed the crucial Strait of Hormuz, the world's largest crude exporter launched a contingency plan to secure oil supplies, a plan 45 years in the making.
At the heart of the plan is a 1,200-kilometer oil pipeline built in the 1980s that has become a key link in the evolving conflict in the Middle East. This east-west oil pipeline (East-West pipeline) traverses the Arabian Peninsula, extending from the large oil fields in eastern Saudi Arabia to the port of Yanbu on the Red Sea coast. Yanbu is a modern industrial city where a fleet of tankers is gathering to load Saudi crude, with more arriving every day.
The current test facing Saudi Aramco, the Saudi national oil giant, is how to increase the crude oil transportation volume of the new line as quickly as possible and in a sustainable way. Ship tracking data shows that as of Friday, the five-day rolling average of crude oil exports from Yanbu Port reached 3.66 million barrels, about half of Saudi Arabia’s total pre-war exports. Loading operations were briefly halted last Thursday following an attack by Iran, a reminder of the potential for volatility in crude output in such a volatile environment.
The pipeline provides a vital relief valve for easing pressure on global oil supplies. Normally, about 20 million barrels of oil are transported through the Strait of Hormuz every day, accounting for one-fifth of global consumption. Since there are no export channels, oil-producing countries have to reduce production. But Saudi Arabia, which has long positioned itself as a stabilizing force in the market, has found an effective expedient.
“The east-west pipeline now looks like a strategic coup,” said Jim Krane, a Wallace S. Wilson fellow in energy studies at Rice University in Houston. “The operation of this pipeline benefits the entire global economy.”
Krane added, "Without this passage around the Strait of Hormuz, Trump's call for help from his allies would be even more urgent." On Saturday, U.S. President Trump issued a warning to Iran, requiring it to lift its blockade of the Strait of Hormuz within 48 hours, otherwise it would launch an attack on Iran's power plants. Tehran responded forcefully, threatening to attack U.S. and Israeli infrastructure in the region, including energy assets.
The Saudi oil pipeline is a product of the Iran-Iraq war in the 1980s and has played a key role since March. Saudi Aramco has long been known for its high-tech drilling, complex machining processes and global logistics system, but now it has to rely on relatively low-tech methods to keep its business running. As Saudi Aramco ramps up shipping oil to market, the east-west pipeline has caused a surge in crude oil exports from the port of Yanbu, more than quadrupling from pre-war levels of less than 800,000 barrels a day.
Immediately after the war broke out, Saudi Aramco began contacting customers to ask if they would be willing to reroute ships to the port of Yanbu because the Strait of Hormuz was impassable. Saudi oil tanker giant Bahri has also begun to make similar demands to ship owners. By March 4, Saudi Aramco confirmed that it had begun to gradually resume operations on the pipeline. Within days, a major Indian refiner ordered cargoes from the port of Yanbu, the first sign that the alternative was starting to work.
As of March 10, a fleet of at least 25 supertankers was sailing to Yanbu Port. The cost of this plan is not low. Sources familiar with the shipping market said that Bahri has to pay up to US$450,000 or more per day to gather enough ships to provide services to the Red Sea ports. However, the number of ships sailing to the port of Yanbu every day continues to rise, indicating that Saudi Arabia is flexing its logistics mobilization muscles. Last week, as the number of tankers waiting to be loaded and unloaded continued to increase, the port's daily oil loading capacity once exceeded 4 million barrels.
"The very existence of alternative routes can help stabilize the market and reassure buyers that not all exports from the region are trapped," said energy consultancy Crystol Energy Ltd. said CEO Carole Nakhle. "However, this is not without risks. If the Yanbu and east-west oil pipelines continue to be tight, it will mark a serious escalation of the situation."
Iran's attack on Thursday on the Samref refinery in Yanbu, a joint venture between Saudi Aramco and U.S. oil giant Exxon Mobil, highlighted the threat posed by war. A day earlier, Israel had attacked Iran's largest natural gas production and processing infrastructure, prompting Tehran to launch retaliatory attacks on energy facilities in the Gulf.
The east-west oil pipeline was attacked in 2019 and could be targeted again if the current conflict in the Middle East erupts into repeated attacks on energy infrastructure.
Production facilities in the eastern region were attacked, and Saudi Arabia's largest refinery, the Ras Tanura refinery, was forced to temporarily shut down. The company has cut crude oil production by as much as 2.5 million barrels per day. All these factors combined will result in lost revenue even if oil prices rise.
Saudi Aramco declined to comment for this story.
Satellite images show firefighting conditions and damage assessment at Saudi Aramco's Ras Tanura refinery on March 2.
“While we have faced some disruptions in the past,” Amin Nasser, Saudi Aramco’s chief executive, said on a March 10 conference call, “this is by far the biggest crisis the regional oil and gas industry has ever faced.”