Saudi Arabia has found another "oil transport route," but at a high cost.

The East-West oil pipeline was forced to shut down after a drone attack, forcing Saudi Arabia to rely on the Strait of Hormuz's "relay oil transport" solution again. However, the high costs and increasingly tight equipment supply make this fallback option challenging.

Pipeline bombed, Red Sea blockage—Saudi Arabia's energy export routes are narrowing one by one. According to the Wall Street Journal, a drone launched from Iraq by forces allied with Iran recently struck Saudi Arabia's East-West oil pipeline, forcing its closure. This pipeline had previously been a key buffer for the global oil market, and its damage has dramatically increased market pressure. Brent crude spot prices surged to $132 a barrel this week, a significant jump from $90 at the end of August.

Against this backdrop, "relay transshipment" via the Strait of Hormuz appears to be Saudi Arabia's most realistic contingency option . This method involves oil tankers sailing through the strait at night under US escort, followed by ship-to-ship transshipment in the Gulf of Oman for export. However, the risk premium of $16 to $20 per barrel, insurance costs of up to 10% of the cargo value, and the increasingly strained supply of transshipment equipment make this escape route prohibitively expensive .

Meanwhile, Saudi Aramco's ability to rapidly repair damaged infrastructure, along with its deep domestic supply chain, provides another layer of potential support for the market. However, the vulnerability of infrastructure in core oil-producing countries has been fully exposed, and analysts warn that any risk event occurring in Saudi Arabia could affect the entire global supply chain.

Pipeline closure causes failure of the oil market's most important buffer.

The strategic value of the East-West oil pipeline far exceeds what was previously widely recognized.

According to the International Energy Agency (IEA), since the Strait of Hormuz was blocked due to war, alternative shipping routes bypassing the strait offset nearly one-fifth of the supply lost due to the strait's closure in July and August. Most of this oil was transported via this east-west pipeline to the port of Yanbu on Saudi Arabia's west coast for export. IEA data shows that the pipeline's role in curbing oil price increases even surpassed the IEA's own emergency reserve releases and the price pressure from declining Chinese oil demand.

However, prior to the attack, the pipeline's capacity had already been strained by frequent Houthi attacks on Saudi vessels in the Red Sea. IEA data shows that oil and refined product exports via Yanbu port fell to 2.9 million barrels per day in August, a significant drop from the March-July average of 5 million barrels per day. The pipeline damage means this buffer space has been further narrowed.

Relay transport: feasible but costly

Currently, the UAE's state-owned oil company, ADNOC, has taken the lead in adopting this method. According to the Wall Street Journal, ADNOC uses its own vessels and charters external ships, transiting the Strait of Hormuz at night under US military escort, and then transferring oil ship-to-ship in the Gulf of Oman. Saudi Arabia's similar method of oil transport is currently considered the most viable alternative route.

However, this approach comes at a considerable economic cost. Oil producers would have to pay $16 to $20 per barrel of crude oil to compensate crew and shipowners for the risks they bear, and insurance premiums could be as high as 10% of the cargo value. Meanwhile, the supply of specialized equipment for ship-to-ship transfers is becoming increasingly tight.

The exact amount of oil flowing out of the strait daily via this route is subject to widely varying estimates from different market participants. Because vessels involved in the transpondering often turn off their transponders to evade tracking, the data is difficult to verify. Commodity traders estimate that approximately 9 million barrels of oil and refined products flow out through this channel daily—but this figure is highly uncertain.

Repair Capability: Saudi Aramco's Hidden Advantage

Amid numerous uncertainties, Saudi Aramco's ability to rapidly repair infrastructure may be the most important potential comfort to the market.

According to Rebecca Schulz, a senior oil analyst at the IEA, Saudi Aramco possesses the most complete supply chain and the strongest asset recovery capabilities in the region, particularly excelling in pipeline repair. Approximately 70% of its operational inputs are sourced domestically, covering chemicals, wellhead equipment, and pipes. In contrast, Iraq and Kuwait are more reliant on imported equipment and international oilfield service providers, and their recovery cycles are typically longer.

The Saudi government's fiscal structure is also a strong driver of rapid recovery—oil revenues account for 55% of its total income. In the second quarter of this year, Saudi Aramco paid approximately $50 billion in royalties, dividends, and income taxes to Riyadh. This means that resuming crude oil exports as soon as possible is a very high priority for the Saudi government.

Infrastructure vulnerability highlighted

This pipeline attack has exposed the systemic vulnerability of Saudi Arabia's energy infrastructure to global investors.

Jim Burkhard, Vice President of S&P Global Energy, pointed out that Saudi Arabia is "the cornerstone of the global oil system, and anything that happens there is crucial." Brent crude spot prices have reached $132 per barrel this week, a surge of over 40% since the end of August.

For the oil market, the bombing of the East-West pipeline means that Saudi Arabia's "Plan B" has failed. Under the current circumstances, returning to the Strait of Hormuz for transshipment is the most realistic option to maintain crude oil circulation—but the costs and risks of this route will continue to be passed on to oil prices.

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