Hormuz is only half of the battle for Gulf exporters

Gulf producers’ export workarounds are delivering uneven results. Saudi Arabia’s Red Sea workaround is losing traffic as shipping risks constrain the onward journey, while the UAE’s Murban crude is commanding a steep premium as Asian refiners compete for supplies. Iraq is getting more barrels out, but its push for alternative export routes shows just how much that recovery still depends on the exposed waterway.

Saudi Arabia shows where the workaround runs into trouble: The Kingdom’s observed crude exports fell to around 3 mn bbl / d in August, the lowest since early 2017, and less than half the roughly 7.3 mn bbl / d it shipped in February — a nearly three-year high — as security risks mount on both routes Saudi uses to get barrels to market, Bloomberg reports. Yanbu loadings dropped to roughly 2.2 mn bbl / d from 4.3 mn bbl / d in June and 3.7 mn bbl / d in July.

Tankers still needed a way out: The Kingdom spent the first months of the war pushing crude through its East-West pipeline to Yanbu after Hormuz effectively shut — a system capable of moving as much as 7 mn bbl / d. By June, Yanbu was handling roughly 4 mn bbl / d and around 92% of Saudi seaborne crude exports. War-risk premiums jumped, tankers began turning back, and some buyers asked Aramco to move their loadings elsewhere.

REMEMBER- The workaround is coming with a bigger detour. Cargoes are being pushed toward Egypt’s Sidi Kerir or voyages around Africa. Sidi Kerir crude exports more than doubled to around 2.3 mn bbl / d in August from about 1 mn bbl / d in July, with Saudi barrels accounting for most of the increase. For Asian buyers, avoiding the southern Red Sea can mean a considerably longer voyage around the Cape of Good Hope.

The squeeze is also showing up in the price of the barrel. Indian and Chinese refiners are stepping up spot purchases of Middle Eastern crude, pushing physical premiums sharply higher as they compete with buyers in Japan and South Korea for limited supplies, Bloomberg reports.

The clearest sign of the squeeze is Abu Dhabi’s flagship Murban crude, which now has a premium of more than USD 30 / bbl over benchmark Dubai crude for delivery to East Asia, traders said. That makes Murban at least USD 10 / bbl more expensive than shipping US WTI crude to the region. Dubai futures have climbed to nearly USD 100 / bbl, the highest since May.

BACKGROUND- Unlike most Gulf grades, which still move largely through Hormuz via ship-to-ship (STS) transfer — shuttle tankers that have to risk crossing the strait before offloading further out — Murban can travel via Adnoc's Habshan-Fujairah pipeline straight to the Gulf of Oman. The line currently carries up to 1.8 mn bbl / d, and Adnoc is expanding it to 3.6 mn bbl / d by 2027.

Why this matters: The premium shows that access to crude outside the chokepoint is now priced as a scarce commodity. Refiners are paying more for barrels carrying lower transit risk, and Murban is currently one of the few Gulf grades that can offer that at scale.

On the other hand, Iraq is recovering exports before it can resolve the route problem. Baghdad has lifted its oil capacity to more than 3 mn bbl / d and has been exporting around that level since the start of September, Asharq Business reports, citing Oil Minister Bassem Khudair. Iraq shipped around 73 mn barrels in August, or roughly 2.2 mn bbl / d — generating an estimated USD 4.5 bn in revenue, its highest monthly export level since the regional war began. Those barrels moved through both Iraq’s southern maritime terminals and the northern route to Turkey’s Ceyhan port.

For now, Iraq can move the handoff more readily than the export route. Somo has started offering Basrah crude for STS pickup near Oman so buyers can collect Iraqi barrels outside the Arabian Gulf. The country is advancing the planned Basra-Hadirtha pipeline toward the west and north, and a possible onward route through Baniyas — a more durable alternative. Iraq is now targeting 5 mn bbl / d once strategic pipeline links toward Fishkhabur and Syria’s Baniyas are completed — alongside its existing export outlets through the Strait of Hormuz.

The signal: The three cases expose different limits to the Gulf’s export workaround. Saudi Arabia can bypass Hormuz and still struggle with the next sea leg; the UAE can load Murban outside the strait, but buyers face intense competition for those supplies; Iraq can offer offshore collection, but the risk of crossing Hormuz is still there. For refiners, the question is how much crude they can reach, at what cost — and how reliably can they reach it.