Saudi Arabia’s $5 Oil Detour Is Expensive—and Worth It

Saudi Arabia's $5 oil detour is not only costly, but also necessary. The crude moves west across Saudi Arabia to Yanbu, then north through the Red Sea to Egypt, and across the SUMED pipeline to Sidi Kerir before finally crossing the Mediterranean. This complex route adds around $5 per barrel in extra freight, fuel, insurance, and pipeline charges. For a two-million-barrel cargo, the additional cost approaches $10 million.

Aramco is considering a separate pricing mechanism for crude loaded at Egypt's Mediterranean port of Sidi Kerir, as the normal Asian official selling price no longer reflects the logistics. While avoiding the Hormuz Strait does make Saudi oil more expensive, the real value lies in the optionality it provides. Two of the world's most vulnerable shipping chokepoints are no longer guaranteed, making this route a critical contingency option.

Moving oil to Yanbu solves the first geographical problem, but Asian buyers would still face unreliable Red Sea routes due to Houthi threats. The detour now extends to the northern Red Sea, avoiding the Houthi-exposed Bab el-Mandeb passage. From there, the ship still faces a lengthy journey around Africa and across the Indian Ocean to Asia, with fuel costs rising significantly and potential cargo offloading at the SUMED pipeline.

Although the additional $5 per barrel may seem large under normal conditions, it is a material cost increase compared to the potential risk of supply interruptions. Oil markets have traditionally focused on cents per barrel, but geopolitical resilience comes at a higher price when supply disruptions occur. The $5 premium is a small price to pay for a material cost increase compared to the potential consequences of a major supply interruption.

The detour's value becomes evident only when the primary route fails, making it comparable to spare generation capacity in an electricity system or a second supplier in an industrial supply chain.