Saudi Aramco Halts Crude Supply to Indian Refiners After East-West Pipeline Attack

Saudi Aramco has informed Indian refiners that it is suspending crude oil supplies to them, with no timeline given for resumption, The Economic Times reported, citing people familiar with the matter. The move follows an attack on Saudi Arabia's East-West pipeline.

The suspension covers Aramco's shipments to India through both the Red Sea and the Strait of Hormuz. Indian refiners are therefore not receiving the contracted term volumes they normally take from Saudi Arabia.

Pipeline attack closes the main workaround

The East-West pipeline was shut at the end of last week after what has been reported as a drone attack by an Iraqi militia. The line matters to Saudi Arabia because crude had been moving along that route after traffic through the Strait of Hormuz was disrupted.

The shutdown stirred the global oil market. Brent crude futures traded at around $108 a barrel on Wednesday.

Term barrels replaced by trader cargoes

Aramco had been supplying roughly 9% of India's total crude requirement since the start of the war, although volumes arriving through Hormuz had already fallen sharply. Aramco typically sells to customers such as India under annual contracts at set official selling prices rather than on the spot market, so the halt removes a predictable, pre-priced block of supply.

• Saudi Arabia has sold some spot cargoes to traders, and limited volumes from those sales are expected to reach Indian refiners.
• Traders can buy Iraqi crude at lower prices and move it through the Strait of Hormuz to the Gulf of Oman.
• From there the cargoes can be passed on to India and other buyers through ship-to-ship transfers.

The constraint is cost, not availability

Indian refiners are confident they can source crude elsewhere. The difficulty is price. International crude prices have already risen substantially, and the discounts previously available on Russian oil have disappeared. When supply is interrupted abruptly, spot prices can rise faster than futures, pushing up refiners' procurement costs.

Freight is adding to the bill. Tanker rates are already near record highs, so replacing Saudi barrels with crude from other origins raises Indian companies' total delivered cost. Global crude inventories are also declining, putting further pressure on prices.

Escalation risk hangs over supply planning

Executives at Indian refining companies are concerned that further escalation of the conflict involving Saudi Arabia and the Iran-backed Houthi group could increase the threat to oil infrastructure, making crude supply harder to forecast. Saudi Arabia is among the world's leading producers, holds about a tenth of global oil production capacity and can adjust output according to market conditions. With world inventories already reported to be lower than usual, a prolonged absence of Saudi crude from the global market would add to uncertainty.