Saudi Aramco is considering a new pricing mechanism for crude loading from Egypt's Sidi Kerir port for Asia to reflect higher shipping costs after re-routing exports through the Suez-Mediterranean Pipeline, three sources with knowledge of the matter said on Tuesday. The world's top oil exporter has been forced to divert supply as Yemen's Iran-aligned Houthis imposed a naval blockade on Saudi oil shipments through the Red Sea's Bab el-Mandeb strait last week. Saudi Aramco declined to comment.
Route Diversion and Pricing Mechanism
Since the start of the U.S.-Iran war, which prevented ships from entering the Gulf via the Strait of Hormuz, Saudi Aramco has been exporting most of its crude from the Red Sea port of Yanbu to Asia, diverting supply from Ras Tanura using its east-west pipeline. Those Yanbu cargoes are sold to term customers based on its monthly official selling price (OSP) for Asia plus a pipeline fee.
Following the Houthis' threat, Saudi Aramco will now ship oil from Yanbu to Egypt's Red Sea port of Ain Sukhna, which is then carried by the Suez-Mediterranean Pipeline to Sidi Kerir. With the latest diversion, the producer could adjust its pricing to take into account higher freight costs and a longer route via the Mediterranean and Gibraltar and then around the Cape of Good Hope, according to another three sources.
| Route Component | Previous (via Yanbu direct) | Current (via Sidi Kerir + Cape) |
|---|---|---|
| Loading port | Yanbu, Saudi Arabia | Sidi Kerir, Egypt |
| Pipeline | East-west pipeline (Yanbu to Ras Tanura) | Suez-Mediterranean Pipeline (Ain Sukhna to Sidi Kerir) |
| Sea route | Red Sea, Bab el-Mandeb, Arabian Sea, Indian Ocean | Mediterranean, Gibraltar, Atlantic, Cape of Good Hope, Indian Ocean |
| Estimated extra cost | N/A | ~$5 per barrel / $10 million per shipment |
Shipping Cost Impact
The extended route adds significant freight expense. One of the sources estimated that this could cost Asian buyers about $10 million extra per shipment, or $5 a barrel. The new pricing mechanism would aim to pass these costs to term customers, likely through an adjustment to the OSP or a separate surcharge, the sources said.
Broader Supply Chain Context
The Houthi blockade is the latest in a series of geopolitical disruptions affecting crude flows from the Middle East. Earlier, the U.S.-Iran war closed the Strait of Hormuz, forcing Saudi Aramco to rely on the east-west pipeline and Yanbu exports. Now, the Red Sea route is also compromised, pushing Saudi crude to take the long way around Africa to reach Asia. The situation remains fluid, and market participants are watching for official announcements from Saudi Aramco on the new pricing formula.
The company's monthly official selling prices for Asia are closely watched benchmarks that influence crude pricing across the region. Any adjustment tied to freight costs would mark a shift from the current system. The three sources indicated that discussions are ongoing, but no final decision has been announced.
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