Saudi Arabia's 400,000-barrels-per-day Jazan refinery will remain offline until at least August 15 after a Houthi missile and drone attack damaged critical facilities, according to Reuters citing consultancy IIR. The refinery was taken offline on July 27 after the attack damaged the Integrated Gasification Combined Cycle (IGCC) complex and the oil storage tank area. Repair work is currently underway, with operations expected to resume initially by August 15. This disruption affects one of Saudi Aramco's newest refining assets and represents a significant escalation in the conflict between Saudi Arabia and Yemen's Iran-backed Houthi movement.
Saudi Aramco is considering a new pricing mechanism for crude loading from Egypt's Sidi Kerir port for Asia to reflect higher shipping costs after re-routing exports through the Suez Mediterranean pipeline. According to reports from The Hindu BusinessLine, the world's top oil exporter is evaluating adjustments to take into account increased freight costs and longer routes via the Mediterranean and Gibraltar, then around the Cape of Good Hope. Three sources with knowledge of the matter confirmed these developments on Tuesday.
The Iran-backed Houthis have intensified their campaign against Saudi oil infrastructure, claiming strikes on multiple critical facilities. As reported by Reuters, the Houthis said they had managed to hit the important Red Sea oil export hub of Yanbu in response to Saudi drones entering Yemeni airspace. The attacks have not been confirmed by Riyadh, but the Houthis also targeted the Saudi Aramco refinery complex in Jizan on Saturday, setting it on fire, with the strikes and resulting fire confirmed by NASA imagery. Houthi military spokesman Brigadier General Yahya Saree said the faction had targeted "sensitive Aramco-affiliated facilities in Jizan with dozens of ballistic missiles and drones," while also attacking "sensitive Aramco-affiliated facilities in Yanbu with a number of ballistic and cruise missiles and drones."
The latest diversion could cost Asian buyers approximately $10 million extra per shipment, equivalent to $5 per barrel, according to one of the sources cited by The Hindu BusinessLine. The Yanbu cargoes are currently sold to term customers based on the monthly official selling price (OSP) for Asia plus a pipeline fee. With the new route via Egypt, Saudi Aramco may adjust its pricing to account for these higher operational costs and extended shipping distances. The rerouting carries real economic consequences, with shifting Yanbu-to-Asia flows around Africa potentially affecting several million barrels a day and adding roughly a month of transit time for some Asian refiners' cargoes, creating both working-capital and physical-inventory shocks simultaneously.
The Iran-Houthi conflict has now expanded to encompass another critical maritime trade route, the Bab al-Mandeb Strait located at the base of the Red Sea. In recent days, Iran-backed Houthi rebels have attacked Saudi Arabian oil tankers and declared a blockade of the strait, according to CNN reports. Johannes Rauball, a senior crude analyst at Kpler, told CNN that vessel transits are currently "hovering near a complete standstill" through the Strait of Hormuz, with just one single ship transiting on Saturday according to Windward Intelligence. The conflict has created significant uncertainty about whether Iran would reimpose hefty toll payments for ships transiting the strait, with an insurance trade group warning that policies could be torn up if ships pay Iran tolls to transit the strait, as that would violate US sanctions.
Oil prices have experienced dramatic volatility as the conflict continues to impact critical shipping routes. Oil prices tumbled 8% Monday, on pace for crude's biggest single-day decline since May 25, despite a pause in fighting between the United States and Iran. The Strait of Hormuz showed zero vessel transits on Saturday after only three commodity vessels transited on Tuesday, the lowest daily count since early May. Brent crude futures are up more than 25% this month, trading near $95 as of Wednesday's reporting, while WTI crude is near $88, representing a sharp reversal from mid-July when Brent had drifted back to $81.62 and WTI to $79.20. The market's resilience during the war has given traders good reason to keep a ceiling on crude prices, even as the on-again, off-again conflict adds considerable doubt that the oil market will ever return to "normal."
