Asian refiners are actively resisting Saudi Aramco's requests to collect crude oil at Yanbu on the Red Sea, citing significant operational challenges. According to Bloomberg reports, at least two Asia-based refiners have asked Saudi Aramco if they can pick up their purchased oil cargoes next month from Egypt's Mediterranean port of Sidi Kerir instead of the Saudi port of Yanbu on the Red Sea. However, at least one of these refiners could scrap altogether the monthly term allocation due to the higher costs to ship the crude from Sidi Kerir via the Mediterranean and around Africa to Asia, according to anonymous trading sources. This resistance represents a significant shift as refiners push back against the traditional pickup locations due to the difficulty of finding ships willing to sail through the dangerous waterway.
Saudi Aramco is offering crude oil outside the Strait of Hormuz to Asian refiners through private negotiations, despite facing refiner pushback. As reported by Reuters, the company is in talks to supply Arab Medium and Arab Heavy crude via ship-to-ship (STS) transfers off Fujairah in the UAE. One source indicated that the cargoes were for September loading, though it was not immediately clear how Aramco moved its cargoes out to Fujairah. This strategy mirrors the approach adopted by United Arab Emirates' Abu Dhabi National Oil Co (ADNOC), demonstrating coordinated efforts among Gulf producers to maintain supply flows. Bloomberg reports indicate that Aramco has re-routed some cargoes to Sidi Kerir and asked refiners in South Korea and Japan to pick their September allocated volume at the Egyptian port, while most processors in China, Taiwan and India were asked to collect their oil from Yanbu.
The current diversions are possible due to the flexible nature of long-term Saudi oil contracts, which provide significant operational flexibility. According to Bloomberg reports, refiners buy Saudi oil under long-term contracts that are agreed on an annual basis, with a set amount of crude purchased over the year but flexibility on when those volumes can be taken, allowing a buyer to reduce or skip its monthly allocation if needed. Prior to the Houthi threats, all of the Saudi oil that went to Asia was loaded at Yanbu and typically sailed through the narrow Bab el-Mandeb strait at the southern end of the Red Sea. The overall volume allocated by Aramco for next month isn't clear, but traders said the amount sold to refiners in countries outside of China were broadly in line with recent months.
Heightened risks to shipping safety in the Red Sea have prompted Saudi Arabia to implement comprehensive diversification strategies for crude oil transportation. Recent attacks on tankers and energy infrastructure by Iran-backed Houthi militants in the Red Sea region have raised risks for shipowners and opened up another front in the Middle East conflict. Yanbu became crucial to Saudi Arabia's efforts to keep shipping large volumes of crude after the war snarled traffic through the Strait of Hormuz and choked off supplies from the Persian Gulf. The Houthis are allowing China-linked and China-crewed vessels to move in the Red Sea, providing some limited access for certain shipping routes, though overall security concerns continue to mount.
