Saudi Aramco to leave European refineries without Saudi oil in October

The Saudi state oil company Saudi Aramco has notified at least two European refiners that they will not receive the oil supplies stipulated by long-term contracts in October. According to Bloomberg, the decision applies to European buyers in general. Aramco itself has not yet publicly commented on this information.

The suspension of supplies is linked to damage to the strategic East-West oil pipeline, through which Saudi oil is transported from fields in the east of the country to the port of Yanbu on the Red Sea. This route has gained particular importance after a sharp reduction in tanker traffic through the Strait of Hormuz.

The approximately 1,200 km pipeline was stopped after a series of attacks on September 10. The Saudi Ministry of Energy reported several strikes and casualties, and the kingdom's authorities later stated that drones launched from Iraqi territory were used in the attack.

Up to 5 million barrels per day passed through the pipeline

Before the East-West shutdown, approximately 4–5 million barrels of oil per day were transported through it toward the Red Sea. Thus, the pipeline provided a route for volumes equivalent to about 4–5% of global oil supply.

According to sources in the oil market, Saudi Arabia expects to partially restore the damaged section within the coming days, but full restoration may take about five to six weeks. This means that the disruptions could affect a significant part of October.

Supply problems began even before the announcement of October volumes. Saudi Aramco has already canceled or postponed some cargoes intended for European refineries for the second half of September. Poland's Orlen was among the companies forced to urgently seek replacements for Saudi oil.

Orlen purchases oil from other suppliers

Orlen, which operates refineries in Poland, Lithuania, and the Czech Republic, previously bought about 40% of the oil it needed from Saudi Aramco. Following the disruptions, the company additionally contracted 16 cargoes of crude from Norway, the United Kingdom, Algeria, Kazakhstan, Azerbaijan, and countries in the Americas. The company says that supplies to its plants are currently continuing without interruption.

The situation is particularly sensitive for the European market, as Saudi Arabia has become one of the important alternative suppliers after European countries rejected a significant part of Russian oil. According to the International Energy Agency, as recently as June, European OECD countries imported about 577 thousand barrels per day from Saudi Arabia.

Now European refineries will have to compete more actively for oil cargoes from the North Sea, the United States, Kazakhstan, Azerbaijan, Africa, and other regions. The Polish Centre for Eastern Studies notes that besides the cost of emergency purchases, an additional problem for refineries may be the need to adapt technological processes to crude grades different from Saudi Arab Light.

At the same time, the stoppage of East-West does not mean a complete halt to Saudi Arabia's oil exports. The kingdom is trying to increase supplies via other routes, but the loss of the main land bypass of the Strait of Hormuz significantly limits the ability to quickly redirect large volumes of crude.

Sources: Bloomberg, Saudi Gazette, OSW, Rzeczpospolita