Saudi Arabia has found another "oil transport route," but the cost is high.

Title context: Saudi Arabia has found another "oil transport route," but the cost is high. Text: The East-West Pipeline was forced to shut down after a drone attack, and Saudi Arabia has had to fall back on a "relay oil transport" scheme through the Strait of Hormuz, but high costs and increasingly tight equipment supplies make this fallback option fraught with challenges. Pipelines bombed, the Red Sea blocked Saudi Arabia's energy export corridors are narrowing one by one. According to The Wall Street Journal, a drone recently launched from Iraq by Iran-allied militants struck Saudi Arabia's East-West Pipeline, forcing it to shut down. This pipeline had long been a key buffer for the global oil market, and its damage has sharply increased pressure on the market. The spot price of Brent crude soared to $132 per barrel this week, a sharp jump from $90 at the end of August. Against this backdrop, implementing "relay transshipment" through the Strait of Hormuz now appears to have become Saudi Arabia's most realistic emergency option. This method involves tankers passing through the strait at night under U.S. military escort, then transferring cargo via ship-to-ship transfer in the Gulf of Oman for export. However, a risk premium of $16 to $20 per barrel, insurance costs that can reach as much as 10% of the cargo value, and an increasingly tight supply of transfer equipment make this fallback option costly. At the same time, Saudi Aramco's ability to quickly repair damaged infrastructure, along with its deep local supply chain, provides another layer of potential support for the market. But the fragility of infrastructure in the world's core oil-producing country has been fully exposed, and analysts warn that any risk event in Saudi Arabia affects the entire global supply system. Pipeline shutdown: the oil market's most important buffer fails The strategic value of the East-West Pipeline far exceeds what was previously widely understood by the outside world. According to analysis by the International Energy Agency (IEA), since the Strait of Hormuz was blockaded due to war, alternative transport measures bypassing the strait offset nearly one-fifth of the supply lost due to the strait's closure in July and August, with most of that oil being exported via this East-West Pipeline to Yanbu Port on Saudi Arabia's west coast. IEA data show that the pipeline's role in restraining oil price increases even exceeded the IEA's own emergency reserve release measures, and also exceeded the price pressure brought by falling PetroChina demand. However, even before the attack, the pipeline's transport capacity had already been compressed by frequent Houthi attacks on Saudi vessels in the Red Sea. IEA data show that in August of this year, oil and refined products exported via Yanbu Port fell to 2.9 million barrels per day, a sharp decline from the March-July average of 5 million barrels per day. Damage to the pipeline means this buffer space has narrowed further. Relay transshipment: feasible but costly At present, ADNOC, the state-owned oil company of the United Arab Emirates, has already taken the lead in adopting this method. According to The Wall Street Journal, ADNOC uses its own vessels and charters external ships, crossing the Strait of Hormuz at night in convoy under U.S. military escort, then carrying out ship-to-ship transfers in the Gulf of Oman. Saudi Arabia adopting a similar method to transport oil is currently seen as the most viable alternative route. However, the economic cost of this plan is quite heavy. Oil producers need to pay $16 to $20 per barrel of crude to compensate crew members and shipowners for the risks they bear, and insurance costs can reach as much as 10% of the cargo value. At the same time, the supply of specialized equipment used for ship-to-ship transfers is becoming increasingly tight. There are wide disparities in market estimates of exactly how much oil is currently flowing out of the strait through this method each day. Because vessels participating in the transfers have turned off transponders to evade tracking, the relevant data are difficult to verify. Commodity traders estimate that about 9 million barrels of oil and refined products flow out through this channel each day but this figure carries considerable uncertainty. Repair capacity: Saudi Aramco's invisible advantage Among the many uncertainties, Saudi Aramco's ability to quickly repair infrastructure may be the market's most important potential placebo. Rebecca Schulz, a senior oil analyst at the IEA, said Saudi Aramco has the region's most complete supply chain and strongest asset repair capability, performing especially well in pipeline maintenance. About 70% of the inputs needed for its operations are procured locally, covering chemicals, wellhead equipment, and pipe materials. By contrast, Iraq and Kuwait rely more heavily on imported equipment and international oilfield service providers, and their repair cycles are usually longer. The Saudi government's fiscal structure also provides a strong incentive to push for rapid repairs oil revenue accounts for 55% of its total revenue. In the second quarter of this year, the royalties, dividends, and income taxes Saudi Aramco paid to Riyadh totaled about $50 billion. This means that restoring crude oil exports as quickly as possible is an extremely high priority for the Saudi government. Infrastructure fragility highlighted This pipeline attack has exposed the systemic fragility of Saudi Arabia's energy infrastructure to global investors. Jim Burkhard, vice president at S&P Global Energy, pointed out that Saudi Arabia is "the cornerstone of the global oil system, and anything that happens there is of vital importance." The spot price of Brent crude has already reached $132 per barrel this week, up more than 40% from the end of August. For the oil market, the bombing of the East-West Pipeline means Saudi Arabia's "Plan B" has failed. Under the current circumstances, returning to relay transshipment through the Strait of Hormuz is the most realistic option for maintaining crude oil circulation but the costs and risks of this route will continue to feed through to oil prices. This article is reprinted from "Wallstreetcn," author: Pan Lingfei; GMTEight editor: Yan Wencai.