Saudi Aramco is discussing a choice between pricing benchmarks with Asian customers, including the possibility of using Brent futures rather than the Dubai and Oman benchmarks. At the same time, Saudi Arabia is negotiating long-term contracts for oil loadings outside the Strait of Hormuz next year.
The talks cover arrangements to deliver cargoes all the way to customers in Asia. Pricing, freight and the volumes that could qualify remain under discussion, and no final decisions have been made.
Saudi Arabia and its customers face a transport problem as well as a pricing one. Iran shut the Strait of Hormuz at the start of the war, blocking sea passage for some 15 million barrels of oil a day. The waterway carries more than a quarter of global seaborne oil trade.
Some shipowners have been reluctant to enter Hormuz since the war began. Aramco has supplied its three main export grades, Arab Light, Medium and Heavy, through shuttle transfers. Saudi Arabia, the United Arab Emirates, Kuwait and Iraq have used ship-to-ship transfers to move cargoes outside the waterway.
The proposed contracts would put longer-term terms around those alternative arrangements. Discussions are continuing and must conclude by year-end.
Saudi Arabia’s principal route around Hormuz has also been disrupted. A drone attack forced the shutdown of the East-West Pipeline on 13 September. The pipeline normally takes oil from the kingdom’s Persian Gulf coast to the Yanbu terminal on the Red Sea, and had been carrying four to five million barrels per day before the attack, roughly four to five per cent of global oil supply.
When the attack stopped loadings at Yanbu, Saudi Arabia raised exports from its eastern Gulf terminals and sent more crude through the Strait of Hormuz. Reuters reported no visible loadings from Yanbu since 16 September.
Analysts estimate that some 6 million barrels of oil per day or more have been travelling through Hormuz on the dark shuttle route on average, equal to some 40% or more of prewar flows. Only Saudi Arabia and the United Arab Emirates have substantial operational pipeline capacity capable of moving exports outside the strait.
The pipeline closure has come as Houthi forces have intensified strikes on Saudi Arabia since the US and Israel struck Iran in late February.
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