Saudi Aramco has halted crude supplies to India, report says
What's the story
Saudi Aramco has halted the supply of crude oil to Indian refiners until further notice, The Economic Times reported. The decision comes as a major blow to Indian refiners already grappling with high crude prices, rising freight costs, and disruptions in traditional supply routes. The halt is part of a wider disruption in crude flows from the Gulf region due to geopolitical tensions.
Pipeline closure
Disruption in crude flows due to pipeline attack
The disruption in crude flows is mainly due to the closure of Saudi Arabia's East-West pipeline after an attack.
The incident has restricted the kingdom's ability to transport crude to its western ports and provided fewer alternatives as the Strait of Hormuz remains disrupted.
Aramco, which accounted for about 9% of India's crude imports since the start of this conflict, has stopped all supplies through both the Red Sea and Strait of Hormuz routes.
Supply challenges
Surge in Brent crude prices
While Indian refiners can seek alternative supplies from other producers, the cost of these replacement barrels is a major concern.
Brent crude oil prices have surged to around $108 a barrel on Wednesday and are still trading above $105 a barrel.
This means that sourcing crude from different suppliers and geographies could potentially increase their overall procurement costs.
Market dynamics
Spot market sales by Aramco
The report said that Aramco has sold some crude cargoes in the spot market to traders and some of these barrels could eventually reach Indian refiners through the Strait of Hormuz.
However, such supplies may not offer the same certainty or pricing advantage as regular term contracts.
The disruption comes at a sensitive time for Indian refiners who rely heavily on imported crude to meet domestic fuel demand and operate their refining systems.
Financial implications
East-West Pipeline hit by alleged Houthi drones
The East-West Pipeline, stretching over 1,200 kilometers from Abqaiq and Juaymah in Saudi Arabia's eastern oil fields to the Red Sea port of Yanbu in the west, was a key crude supply route for Aramco, especially after the closure of Hormuz.
The pipeline, capable of carrying up to 7 million barrels of crude oil per day, now moves 4 to 5 million barrels, accounting for 4% to 5% of global supply.
It was hit by alleged Houthi drones last week.