Saudis Halt Oil Shipments Via Bab el-Mandeb After Attack

OILMONSTER.COM- Saudi Arabia took the extraordinary measure of temporarily suspending oil shipments through the Bab el-Mandeb Strait after two tankers came under attack by Yemeni Houthi militia members Wednesday.

The two vessels, each carrying 2 million barrels of oil, belong to the Saudi National Shipping Co., Energy Minister Khalid al-Falih said in a statement posted online. One of the two was hit and suffered minor damage; there were no injuries or oil spills as a result.

“In the interest of the safety of ships and their crews and to avoid the risk of oil spill, Saudi Aramco has temporarily halted all oil shipments through Bab el-Mandeb with immediate effect,” al-Falih said.

Oil investors took the halt in stride, with West Texas Intermediate crude climbing only a few cents after the announcement. WTI was up 87 cents to $69.39 a barrel at 6:55 p.m. in New York, while Brent crude in London was up 49 cents at $73.93.

Saudi Arabia has been fighting with the Houthi militia in Yemen -- backed by Iran -- for more than three years.

"Fingers will certainly be pointed at Iran, a long-term backer of the Houthis, although the Saudis and others overstate the extent to which Iran influences the Yemeni group," said Richard Mallinson, geopolitical analyst at consultant Energy Aspects Ltd. in London. 

European Path

The Bab el-Mandeb Strait, off the coast of Yemen, Djibouti, and Eritrea, connects the Red Sea with the Arabian Sea and is one of the world’s key shipping lanes for crude oil and other petroleum products. The strait allows for crude exports into the European market via either the Sumed pipeline that links the Red Sea with the Mediterranean through Egypt or the Suez Canal.

A full closure of the strait, which at its narrowest point is just 18 miles (29 kilometers) wide, would force tankers sailing from Saudi Arabia, Kuwait, Iraq, the United Arab Emirates "around the southern tip of Africa, which would add to transit time and cost," according to the U.S. Energy Information Administration.

Saudi Arabia can still use its East-West mega-pipeline to ship crude from its oil fields in the Persian Gulf into the city of Yambu on the Red Sea, bypassing the strait and keeping the European market within regular reach. The East-West pipeline has a capacity of about 5 million barrels a day.

The EIA estimates that in 2016 -- the last year with reliable data -- 4.8 million barrels a day of crude and petroleum products flew through the strait, with about 2.8 million going northbound toward Europe, and another 2 million going from Europe into the Middle East and Asia. The strait is an important route for European refined oil products to reach global markets.

While important for global oil flows, Bab el-Mandeb is significantly less crucial that the more famous Strait of Hormuz offshore Iran, which in 2016 saw the shipment of 18.5 million barrels a day, according to the EIA. Iran’s revolutionary guard has threatened to halt shipments via Hormuz in response to U.S. sanctions.

Aramco, the Saudi state-owned company, kept the flow open through the narrower Strait of Hormuz during the 1984-1988 period of the Iran-Iraq war called the tanker war, when both countries attacked vessels in the Persian Gulf, and also during the 1990-91 first Gulf War.

 Courtesy: www.bloomberg.com