Saudi Oil Export Costs Surge as Red Sea Risks Mount

Saudi Arabia is grappling with a surge in oil export costs due to mounting risks in the Red Sea. The cost of war-risk insurance for Saudi-linked tankers calling at the Yanbu port has tripled to around 3% of a vessel's value. Premiums at other ports, like Jizan, can even reach 7%. Such soaring costs add millions of dollars to every cargo.

A typical voyage from Yanbu can carry about $3 million in war-risk insurance, rising to $7 million or more from farther south or through the Hormuz Strait. Charter rates charge at least $500,000 per day, with bunker fuel adding another $100,000 or more.

Saudi Arabia invested billions in the East-West pipeline to circumvent Hormuz. However, the pipeline, which carried about 4 million barrels per day to Yanbu, recently shut down due to drone attacks. Aramco has restarted it at reduced rates, but as of now, Yanbu's crude loadings haven't resumed. This setback has pushed Saudi Arabia back toward the Persian Gulf, where Aramco recently exported roughly 60 million barrels in September and October, moving crude through Hormuz for ship-to-ship transfers near Sohar.

The Red Sea route faces threats from the Houthis, who have warned of attacks on Saudi-linked vessels around Bab el-Mandeb. Shipping companies distinguish between the risks in Hormuz and the Red Sea. While U.S. forces have provided aerial support around Hormuz, no similar protection exists in the Red Sea. Now, Saudi Arabia has two export routes, each carrying their own set of challenges: expensive ships, costly insurance, and increased uncertainty about the safe delivery of oil.