Saudi Arabia Said to Be Finalizing Plan to Transfer Oil Supplies via the Strait of Hormuz to Compete for Market Share

Saudi Arabia is said to be finalizing a plan to transfer oil supplies via the Strait of Hormuz to compete for market share. Saudi Arabia is in talks with crude buyers to load crude outside the Strait of Hormuz starting next year and incorporate the arrangement into long-term supply contracts, according to people familiar with the matter. The transshipment model has already been used during the Iran conflict, and Saudi Arabia now wants to make it a permanent fixture as it seeks a larger market share. The talks are still ongoing and need to be concluded before the end of this year, the people said. If approved, the plan would mark a major shift in how Saudi crude is delivered to customers, as deliveries under long-term contracts account for the vast majority of Saudi supply. The eight-month-old Iran conflict has disrupted traditional crude shipping routes, severely hampering navigation through the Strait of Hormuz. Major Gulf oil exporters have been forced to adjust their operations to ensure supply to customers. As competition for buyers intensifies, the Hormuz transshipment model has become a key mechanism for securing market supply: the seller bears the risk of navigating the strait and transfers crude to other tankers outside it. Saudi Aramco is also discussing other adjustments, including offering a choice of pricing benchmarks and even delivering cargoes directly to Asian customers, according to the people. No final decisions have been made, and details including pricing, freight rates and available volumes are still under discussion. Neither Saudi Aramco nor the Saudi Ministry of Energy responded to requests for comment on the talks. Before the conflict broke out, Saudi Aramco's key Asian customers arranged their own tankers to pick up cargoes at the Ras Tanura export terminal deep in the Persian Gulf, with shipping arrangements generally not handled by the Saudi side, according to the people. After the conflict erupted, some shipowners were unwilling to sail into the Strait of Hormuz. Even with ample crude supply, buyers struggled to charter tankers at reasonable cost. Against this backdrop, the UAE, Saudi Arabia, Kuwait and Iraq activated the Hormuz transshipment option, completing crude deliveries via ship-to-ship transfers outside the strait. Saudi Aramco has supplied its three main crude grades -- Arab Light, Arab Medium and Arab Heavy -- through this transshipment mechanism, the people said. Separately, Saudi Aramco recently allowed some buyers to conduct ship-to-ship crude transfers off the coast of India, according to other sources. For customers unable to reach the Gulf of Oman due to security concerns, this is a relatively safe alternative that also helps ease congestion at Arabian Peninsula ports. Saudi Aramco is also studying shipping arrangements to try to deliver more crude directly to customers, the people said. In addition to ensuring smooth exports, such a plan would allow Saudi Aramco to share in some of the gains from soaring tanker rates in the Strait of Hormuz. Some Asian buyers are in talks with Saudi Aramco to switch long-term contract crude purchases to Brent futures pricing, replacing the current Dubai and Oman benchmarks, according to the sources. That would also give the Gulf oil producer greater pricing flexibility.