Alternative routes for oil shipments in focus: The US strikes on Iranian nuclearfacilities earlier this week brought the prospects of Iran opting to close the vital Strait of Hormuz into the forefront. Saudi Arabia — accounting for 38% of the crude trade flowing through Hormuz as of 2024 — will need to rely on alternative shipment routes, or risk being vulnerable to disruption in a route that moves about 20% of the world’s oil and LNG.

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Hormuz is the primary export route for crude and condensate pumped by Saudi Arabia and its neighbors, with tankers carrying 16.5 mn barrels per day (bbl / d) through the strait in 2024, according to data compiled by Bloomberg. The strait handles roughly 80% of our oil exports, totalling some 6.5 mn bbl / d.

The strait’s position in the global supply chain could lead to a shock in the markets if it was closed, pushing crude oil prices to soar past USD 130 per barrel, according to Bloomberg analysts.

Oil exporters are ramping up their shipments in anticipation. The Kingdom shipped the highest crude volume through the strait in over two years during the week ending June 15, moving some 7.18 mn bbl / d, up around 25% w-o-w, according to S&P Global. Other producers (like the UAE and Iraq) saw their shipments up 10% in the first half of June, mainly toward Asian markets like China. Even Iran’s exports — almost entirely shipped to China — saw similar increases.

The alternatives: Bypass pipelines could help alleviate the impact of a potential closure of the strait on the Kingdom, albeit with notable constraints. One key bypass is the 1.2k km East-West pipeline that stretches from Abqaiq near the Arabian Gulf to a Red Sea terminal at Yanbu, Mees reported. The pipeline has a 5 mn bbl / d capacity, with the option to expand at short notice to 7 mn bbl / d.

The catch: Pivoting to the Red Sea as an export base carries several challenges. The pipeline is already being used to shuttle some 1.48 mn bbl / d necessary to power Yanbu and Rabigh refineries in the west, taking away from its capacity to carry crude oil for exports, according to Mees analysts. Limited tankage capacity at Yanbu and Yanbu South facilities — compared to Aramco’s main export terminals on the Gulf Coast — adds to the limitations.

A backup for the backup: Saudi Aramco has parallel infrastructure in place to pick up the slack when the East-West pipeline is offline, S&P Global reported in 2020. This backup — limitedly publicized by Aramco — utilizes a network of parallel pipelines and is designed to convey 50% of total capacity within 24-48 hours, an anonymous source told the credit rating agency. "It is a back-up pipeline for the East-West, and is being used, and that is basically to avoid any blockage through the Strait of Hormuz," the sources said at the time.

IN CONTEXT- The possibility of a Hormuz closure was at an all-time high after the US strikes. Iran’s parliament voted earlier in the week to shut down the strait, according to Iranian state TV, leaving it up to the country’s national security council to make a final decision, Al Arabiya reported.

BUT- It seems the situation is heading towards de-escalation as of now, after US President Trump announced “a complete and total ceasefire” had been “fully agreed” between Iran and Israel. The phased ceasefire is understood to start coming into effect in a matter of hours and lead to a complete end to the hostilities after 24 hours. The announcement came shortly after Iran’s missile attack on the US’ largest military base in the region in Qatar.

Closing Hormuz would be an unprecedented move, as Tehran has never gone through with closing the waterway but threatened to do so multiple times, including in 2011 in response to the impact of Western sanctions. The strait was also disrupted several times before, including during the Iran-Iraq war in the 1980s, when Tehran seized a Chevron-chartered, US-bound tanker in 2023, and most recently when it seized the Israel-linked vessel MSC Aries last year.

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