Strait of Hormuz Bottleneck – Saudi Supply Scenarios

Energy maps shift as the Strait of Hormuz narrows, and transport costs rise. A single marine excursion has the potential to expose even the most robust supply systems, change national goals, and drive down prices. For this reason, the Strait of Hormuz attracts attention from all around the world as a daily test of the resilience of the oil and gas markets.

The practical question still stands, even though risk assessments change every week: how will key exporting countries respond when location becomes a price factor, and how will Saudi Arabia develop its choices for ensuring supply and exports without using overestimates?

The Strait of Hormuz & the Export Equation

Energy experts assert that the Strait of Hormuz is the largest bottleneck to oil transit, with the International Energy Agency reporting it managed over 20 million barrels of oil per day in the first ten months of 2023. Any disruption to this canal significantly affects clients in Europe and Asia.

According to the U.S. Energy Information Administration, OPEC+ production cutbacks contributed to a decrease in transit volumes between 2022 and 2024. This hasn’t, however, lessened the Strait of Hormuz’s importance in risk pricing since alternatives aren’t always evaluated under pressure and don’t entirely offset the volume.

The Strait of Hormuz influences Saudi Arabia’s buyer confidence as markets react to potential disruptions, impacting supply schedules, insurance rates, and shipping contracts. Threats can lead to total shutdowns or partial interruptions due to delays and route changes, prompting purchasers to rearrange schedules, alter supply sources, and face higher insurance and financing costs.

With estimated available capacity ranging from 3.5 to 5.5 million barrels per day—a significant gap compared to typical transit levels—fact sheets from the International Energy Agency confirm that options for avoiding the Strait of Hormuz via operational pipelines remain essentially limited to Saudi Arabia and the United Arab Emirates.

Therefore, Saudi Arabia is addressing risks by implementing short-term measures to maintain flow stability and enhancing logistical flexibility and inventory management. These actions aim to prevent tensions in the Strait of Hormuz from leading to prolonged disruptions by monitoring market signals regarding the stockpiles held by consumer nations, potentially easing initial interruptions.

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The East-West Pipeline Advances

The pipeline from east to west to Red Sea ports is Saudi Arabia’s main strategy to bypass the Strait of Hormuz. In 2019, Aramco modified some natural gas liquids (NGL) pipelines for crude oil, increasing capacity to about 7 million barrels per day, as reported by the US Energy Information Administration.

To minimise shipping disruptions at Bab el-Mandeb, 2024 saw an increase in supply, highlighting its potential risk management role. Its efficiency, however, depends on port storage capacity, the sequential handling of tankers, and specific client demands for crude oil that are not easily adjustable through rerouting. Additionally, the necessity to safeguard and secure land-based infrastructure is increased when a large percentage of exports are diverted to this route because any damage to it decreases the margin of manoeuvre.

Shipping routes in the Red Sea are critically navigated due to the absence of safe harbours. Key bottlenecks like the Strait of Hormuz influence shipping traffic, with vessels heading to Asia using Bab el-Mandeb, while European-bound ships may take the Suez Canal or SUMED pipeline in Egypt. The SUMED pipeline and Suez Canal accounted for about 12% of seaborne oil trade in early 2023, with the SUMED pipeline offering a daily capacity of 2.5 million barrels, though it faces constraints with increased diversions.

Still, some tankers may opt to round the Cape of Good Hope during tense periods while crossing the Bab el-Mandeb Strait, which increases transportation costs and transit times and pressures refineries. To mitigate risks, realistic scenarios involve maximising storage near markets, combining westward shipments as needed, and maintaining alternative routes when conditions permit.

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Economics Between Politics & Resilience

Options for logistics are inextricably linked to economic and political instruments. Protecting oil flows necessitates more extensive maritime coordination and communication with importing nations and shipping firms since changes in insurance circumstances, vessel failures, and production halts have all contributed to the interruption.

Alternatively, Saudi Arabia might use its stockpiles or reschedule shipments to avoid bottlenecks, which would be consistent with the notion that resilience entails both boosting output and managing when oil reaches the buyer.

Furthermore, because messages of stability can reduce the risk premium associated with the Strait of Hormuz, OPEC+ choices and spare capacity serve as a psychological safety net for the market, even when the problem is transportation rather than production.

Longer term, industrial diversification—such as growing the importance of petrochemicals and refining—is progressing to lessen revenue sensitivity to changes in crude oil routes without asserting that this removes the need for safe maritime routes.

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Concluding Remarks on the Possible Scenario

According to analysts in international organisations, the Saudi strategy seems to combine real possibilities with unavoidable constraints. The East-West pipeline gives the Kingdom the option to route a sizable amount of its exports via the Red Sea, even while the Strait of Hormuz continues to be a major energy system bottleneck.

In addition to controlling its reserves and working with its partners, channels are one way to achieve this, like the Suez Canal and the Sumed pipeline, when necessary.

In the end, no one route can entirely compensate for the Strait of Hormuz. Rather, a network of possibilities exists, with efficiency varied according to the severity and duration of disturbances. The clearest lesson is that the Strait of Hormuz’s stability is a critical feature that has a considerable impact on the global energy picture.

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