Saudi Arabia has put the East–West pipeline back into operation, restoring a critical alternative route for transporting crude. Through the land corridor, millions of barrels can be piped from the eastern deposits to the Red Sea, bypassing the Strait of Hormuz.
According to three sources with knowledge of the situation cited by Reuters, Saudi Aramco's pipeline restarted on September 22, after the shutdown that followed the drone attacks. The return of the system is taking place gradually, as for the time being the quantities transported remain limited.
For the international shipping market, however, the crucial element is not only that the pipeline has been put back into operation. It is how quickly Saudi Arabia will be able to increase flows to the Red Sea. East-West is the main Saudi alternative to Hormuz, connecting the oil-producing regions in the east of the country with Yanbu. Through this, Riyadh can channel significant quantities of crude directly to the west coast and from there to international markets.
The domino effect on tankers
The shutdown of the pipeline had caused exactly the opposite effect. With the western exit limited, most of the Saudi exports were transferred to the terminals of the Persian Gulf. This increased the need for tankers in an area where available capacity had already been dramatically reduced by the crisis in Hormuz.
Aramco stepped up shipments from the east side of the country, while at the same time alternative transport and ship-to-ship operations were developed, including through Sohar in Oman. The result was the creation of additional demand for shuttle tankers and VLCCs, at a time when every available large tanker was gaining increased value for charterers. The picture was impressively captured on September 20, when about 14 million barrels of Saudi crude were loaded onto seven VLCCs in one day.
The return of the East–West Pipeline may now begin to reverse some of this process. The more barrels transported to Yanbu, the smaller – in theory – the need to channel additional cargoes through the Persian Gulf becomes. And this means that part of the extraordinary demand for tankers created after the pipeline interruption can be gradually reduced. This is not, however, a switch that changes the market overnight. VLCC fares continue to be supported by extremely limited actual ship availability, delays, increased exposure to war risk and most importantly the ongoing disruption in Hormuz.
That is why the next few days become particularly important. If Aramco manages to significantly increase flows through East-West, a portion of the VLCCs currently used for emergency management of Saudi exports could return to the wider market. Otherwise, if the pipeline remains at low capacity for a longer period of time, the impact on the freight market will be limited.
Its restart, therefore, does not put an end to the VLCC rally. But it removes one of the factors that sharply strengthened it after mid-September. And now the market will monitor not just whether East-West works, but how many barrels it manages to extract daily from the Hormuz equation.
protothema.gr
