Saudi East-West Pipeline Shutdown Puts Asia’s Biggest Crude Importers in a Supply Squeeze

The shutdown of Saudi Arabia’s East-West pipeline threatens to tighten already scarce crude supplies for Asia’s four biggest importers.

South Korea appears the most directly exposed because Saudi barrels represent the largest share of its crude imports among the four markets cited.

Saudi crude accounted for 34.1% of South Korean crude imports in July, according to the Korea International Trade Association.

The corresponding share was 27.3% for Japan, based on government data, and 14.9% for China, according to customs data.

India received 10.2% of its crude imports from Saudi Arabia, Kpler data show. Those import shares do not directly indicate how many barrels are exposed to the pipeline shutdown, but they illustrate the importance of Saudi supply across the region.

Export constraints at the Hormuz Strait had already redirected a substantial volume of Saudi exports westward to Yanbu, the Red Sea port connected to the pipeline.

Thomas Luedi, Asia-Pacific head of energy and natural resources at Bain & Company, said Yanbu had taken over the large majority of Saudi exports previously shipped through Gulf terminals.

Luedi estimated that about 4 million barrels per day of supply bound for Asia could be at risk.

Oriano Lizza, sales trader at CMC Markets, placed the potential disruption between 3.5 million and 4.5 million barrels per day after stored crude in Yanbu and Egypt is depleted.

Matt Smith, director of commodity research at Kpler, said the oil market could lose 120 million barrels if the pipeline remains closed for a month and storage at Yanbu is drawn down.

His calculation assumes the pipeline carries 4.5 million barrels per day of exports and that Yanbu holds 15 million barrels.

The eventual loss could be substantially smaller if stored crude remains available, Saudi Arabia arranges alternative Gulf loadings, or the pipeline partially resumes operations. Those variables leave the scale of the physical disruption uncertain even as refiners confront more immediate commercial pressure.

For Asian refiners, higher costs could arrive before any outright shortage.

“Asian refiners feel the cost immediately and the physical shortage weeks later,” Lizza said, pointing to widening premiums for medium-sour grades and increased delivered freight expenses as early signs of stress.

Chokwai Lee, director of equity research, also identified prices and shipping expenses as the first major consequences.

“The biggest near-term impact is likely to be on oil prices and freight costs rather than physical availability,” Lee told CNBC.

The effect on crude flows is expected to emerge later in the year. Luedi and Lizza estimated that stored crude at Yanbu and in Egypt could sustain exports for roughly one to two weeks.

If those inventories are exhausted while the pipeline remains closed, Saudi loadings could begin to decline.

Replacement cargoes sourced from the Americas or West Africa can take more than a month to reach Asian buyers, extending the challenge for refiners seeking substitute barrels.

Macquarie strategists expect greater feedstock flexibility to soften the consequences of disrupted Saudi flows.

Asian refiners have improved their ability to process a broader selection of crude grades, which could provide additional flexibility when purchasing supplies in the spot market.

The duration of the shutdown remains unresolved because the Kingdom has not provided a restoration timeline.

The Associated Press and Reuters reported that repairs could require between three and six weeks, leaving refiners to weigh immediate cost increases against the possibility of later supply constraints.

U.S. Energy Secretary Chris Wright offered a more optimistic assessment last week, telling CNBC that the vital East-West crude oil pipeline would resume operations “very soon.”

Until operations restart, stored barrels, alternative loadings and refinery flexibility will determine how sharply the shutdown affects Asia’s largest crude importers.