Saudi Arabia is being forced to fall back on a "relay shipping" strategy through the Strait of Hormuz after a drone strike shut down its East-West pipeline, but soaring costs and tightening equipment supplies are making this fallback increasingly challenging.

With pipelines bombed and Red Sea routes blocked, Saudi Arabia's energy export corridors are narrowing one by one. A drone launched by an Iran-aligned armed group from Iraq recently struck Saudi Arabia's East-West pipeline, forcing its closure. This pipeline had long served as a critical buffer in the global oil market, and its damage has suddenly escalated market pressure. Brent crude spot prices surged to $132 per barrel this week, a sharp jump from $90 at the end of August.

Against this backdrop, the "relay transfer" method through the Strait of Hormuz has emerged as Saudi Arabia's most practical emergency option. This approach involves tankers sailing through the strait at night under U.S. military escort, followed by ship-to-ship transfers in the Gulf of Oman for export reloading. However, risk premiums of $16 to $20 per barrel, insurance costs that can reach 10% of cargo value, and increasingly scarce transfer equipment supplies make this route prohibitively expensive.

Meanwhile, Saudi Aramco's ability to rapidly repair damaged infrastructure and its deep domestic supply chain provide another layer of potential support for the market. But the fragility of core oil-producing infrastructure has been fully exposed, and analysts warn that any risk event in Saudi Arabia impacts the entire global supply system.

Pipeline Closure Eliminates the Market's Most Important Buffer

The strategic value of the East-West pipeline far exceeds what many previously recognized.

According to analysis from the Infrastructure and Energy Alternatives, Inc., alternative transport measures bypassing the strait offset nearly one-fifth of the supply lost due to its closure in July and August after the Strait of Hormuz was blockaded by war, with most of that oil flowing through the East-West pipeline to Yanbu port on Saudi Arabia's west coast for export. Data from the Infrastructure and Energy Alternatives, Inc. shows the pipeline's role in curbing oil price increases surpassed even its own emergency reserve releases and the price pressure from declining Chinese oil demand.

However, even before the attack, the pipeline's capacity had already been constrained by frequent Houthi attacks on Saudi vessels in the Red Sea. Data from the Infrastructure and Energy Alternatives, Inc. shows that oil and refined product exports from Yanbu port fell to 2.9 million barrels per day in August, down sharply from the 5 million barrels per day average between March and July. The pipeline damage means this buffer space has narrowed further.

Relay Transfer: Feasible but Costly

Currently, UAE state-owned oil company ADNOC has adopted this method first. Using its own vessels and chartered external ships, ADNOC moves in convoys through the Strait of Hormuz at night under U.S. escort, then conducts ship-to-ship transfers in the Gulf of Oman. Saudi Arabia adopting a similar approach for oil transport is now seen as the most viable alternative route.

But the economic costs of this plan are substantial. Producers pay $16 to $20 per barrel to compensate crew and shipowners for the risks they bear, while insurance costs can reach 10% of cargo value. Meanwhile, specialized equipment for ship-to-ship transfers is becoming increasingly scarce.

Estimates of how much oil flows through this channel daily vary widely. Since participating vessels turn off transponders to avoid tracking, data is hard to verify. Commodity traders estimate around 9 million barrels of oil and refined products exit through this route daily—though this figure carries significant uncertainty.

Repair Capability: Saudi Aramco's Hidden Advantage

Among the many uncertainties, Saudi Aramco's rapid infrastructure repair capability may be the market's most important potential comfort.

Rebecca Schulz, senior oil analyst at the Infrastructure and Energy Alternatives, Inc., notes that Saudi Aramco has the region's most complete supply chain and strongest asset repair capabilities, particularly in pipeline maintenance. About 70% of its operational inputs are sourced domestically, covering chemicals, wellhead equipment, and pipe materials. In contrast, Iraq and Kuwait rely more heavily on imported equipment and international oilfield service providers, leading to longer repair cycles.

Saudi Arabia's fiscal structure also creates strong incentives for rapid repair—oil revenue accounts for 55% of total government income. In the second quarter of this year, Saudi Aramco paid approximately $50 billion in royalties, dividends, and income taxes to Riyadh. This means restoring crude exports as quickly as possible holds the highest priority for the Saudi government.

Infrastructure Vulnerability Exposed

The pipeline attack has laid bare the systemic fragility of Saudi Arabia's energy infrastructure to global investors.

Jim Burkhard, vice president at S&P Global Energy, points out that Saudi Arabia is "the cornerstone of the global oil system, and anything that happens there matters immensely." Brent crude spot prices have already hit $132 per barrel this week, up more than 40% from late August.

For the oil market, the bombing of the East-West pipeline means Saudi Arabia's "Plan B" has failed. Under current conditions, returning to relay transfer through the Strait of Hormuz is the most realistic way to maintain crude flow—but the costs and risks of this route will continue to transmit directly into oil prices.