Saudi Arabia includes Red Sea oil lifting in long-term contracts for the first time, giving buyers a "two-choice" option to cope with the Hormuz crisis.

The crisis in the Strait of Hormuz continues to escalate, and Saudi Arabia is forcibly switching the global crude oil supply chain to a backup track.

According to a Bloomberg report on Monday, Saudi Aramco has formally offered long-term contract customers an option: the April crude oil quota can be picked up via the Red Sea port of Yanbu. This is the first time Saudi Arabia has included the Red Sea pickup option in long-term supply contracts.

However, buyers who choose Yanbu can only get part of their monthly quota due to pipeline capacity bottlenecks; if they continue to load from the Persian Gulf, they face the risk of getting nothing as the strait remains shut. This "two-choice" arrangement highlights the profound uncertainty over the duration of the Hormuz crisis in the market.

This adjustment has a direct and far-reaching impact on the global crude oil market. Japan has started the national strategic oil reserve release procedure, and meanwhile, about 30 Very Large Crude Carriers (VLCCs) are heading to Yanbu Port, compared to the port’s historical monthly arrivals of only about two vessels. Whether port capacity can handle demand has become the core variable concerning the market.

Pipeline Capacity Limits "Red Sea Plan"

Saudi Aramco’s crude oil exports last month were 7.2 million barrels per day, with most shipped via the Persian Gulf’s Ras Tanura and Juaymah terminals. Saudi Arabia has a cross-country pipeline with a daily capacity of 5 million barrels leading straight to the Red Sea, but Yanbu port’s actual export capability may be below this upper limit.

According to informed traders, buyers picking up from Yanbu can currently only obtain one grade of crude: Arab Light. If hostilities continue, crude oil shipped from Yanbu to Asia will likely be settled on a "delivered at destination" basis—meaning Saudi Aramco will handle transportation and logistics, rather than the usual buyer-arranged shipping model.

Asia Takes the Brunt, Europe Also Suffers

Long-term contract sales of Saudi crude are mainly to Asian buyers. After the Hormuz crisis, Asian refineries have felt the most direct impact. Sinopec cut its operating rate by 10%, and Japan tapped its national reserves—both urgent responses to supply disruptions.

Saudi Aramco has ramped up shipments via Yanbu since hostilities broke out (now entering its third week), and has taken unusual steps, such as selling Yanbu-origin crude by spot tender. Including the Red Sea pickup option in long-term contracts marks a shift from temporary operations to institutionalization.

European refiners haven't escaped either: some large refineries in Europe reported contract quotas from Saudi Aramco falling short of expectations, one major refinery has zero loadings for April, and another received less than its applied quota.

High Uncertainty Over Crisis Duration

The fundamental driver behind this supply chain restructuring is the market’s uncertainty over the Hormuz crisis’s direction and duration. Iranian attacks on passing vessels and infrastructure have halted almost all Gulf oil exports via Hormuz, and producing countries like Iraq, Kuwait, and UAE, due to local storage saturation, have cut production in succession.

Meanwhile, Trump’s shifting statements about US intervention make it difficult for both allies and opponents to judge when the conflict might end; even if the US intends to pull back, Iran has yet to show willingness to cooperate.

Against this backdrop, Saudi Aramco’s "two-choice" scheme for buyers essentially transfers the costs of uncertainty to buyers—choosing certainty means accepting volume discounts; pursuing full supply means shouldering the risk of getting nothing.

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