Saudi Arabia's March oil revenue did not decline but increased: the Strait of Hormuz "deadlock," and Riyadh's "only child"!

(Source: China Electric Power News)

Reprinted from: China Electric Power News

The latest industry analysis finds that the blockade of the Strait of Hormuz and the resulting surge in global oil prices are “counterintuitive” and have unexpectedly benefited the largest oil producer in the Middle East, Saudi Arabia, despite countries lacking alternative transportation routes still losing billions of dollars.

Since late February, when the US and Israel launched airstrikes against Iran leading to escalating conflict, Iran has effectively blocked the Strait of Hormuz—about one-fifth of global oil and liquefied natural gas shipments traditionally pass through here. Although Iran later stated it would allow ships unrelated to the US or Israel to pass, so some oil tankers can still traverse this narrow waterway, energy markets have nonetheless experienced unprecedented turbulence.

In March, the international Brent crude oil price rose by 60%, setting a monthly increase record.

Interestingly, despite many regions worldwide facing inflation and economic losses driven by rising energy prices, for Middle Eastern oil-producing countries, the impact level actually depends on their geographic location.

Although Iran controls the Strait of Hormuz, Saudi Arabia, Oman, and the UAE can bypass the strait through pipelines and ports. In contrast, Iraq, Kuwait, and Qatar lack alternative routes to international markets, causing their oil exports to stall.

An undisputed fact is that, with the conflict between the US, Israel, and Iran effectively blocking the Strait of Hormuz, crude oil and condensate exports from most Gulf countries have indeed declined. Industry estimates of March export data show that Iraq and Kuwait’s nominal oil export revenues have plummeted by about three-quarters year-over-year.

However, data from another source shows Iran’s oil export revenue increased by 37% year-over-year, Oman’s by 26%, and Saudi Arabia’s by 4.3%.

Among these, the “no decrease but increase” in Saudi Arabia’s oil export revenue is particularly notable—industry estimates suggest that, excluding Iran, which controls the Strait, and Oman, with major ports outside the Strait, only Saudi Arabia achieved revenue growth in March. This is because rising oil prices offset the relatively small decline in export volume, even boosting revenue.

This estimate uses export volume data from ship tracking company Kpler, combined with JODI data where available, multiplied by Brent crude oil’s average price, and compared to the same period last year. For simplicity, Brent crude oil prices are used as the benchmark, although many Middle Eastern crudes are priced based on other regional benchmarks, which currently trade at a significant premium over Brent.

Saudi Arabia’s East-West Pipeline: a major advantage

For Saudi Arabia, increased oil export revenue means higher royalties and taxes from state oil giant Saudi Aramco, whose majority shares are owned by the government and sovereign wealth funds.

After Saudi Arabia invested heavily to diversify its income and reduce dependence on oil, the current rise in oil prices is especially beneficial. The country’s greatest contributor to maintaining oil income despite the Strait blockade is undoubtedly its east-west oil pipeline.

Saudi Arabia’s largest oil pipeline is the 1,200-kilometer East-West Pipeline, built during the Iran-Iraq War in the 1980s to bypass the Strait of Hormuz. It connects eastern oil fields with the Red Sea port of Yanbu and is currently operating at full capacity after expansion, with a daily throughput of 7 million barrels.

Saudi domestic consumption averages about 2 million barrels per day, leaving roughly 5 million barrels per day for export. Shipping data shows that despite an attack on Yanbu port hub on March 19, the port’s loading volume still reached nearly full capacity of 4.6 million barrels per day during the week of March 23.

Kpler and JODI data indicate that Saudi crude oil exports in March decreased by 26% year-over-year to 4.39 million barrels per day. Nevertheless, rising oil prices increased the value of these exports by approximately $558 million compared to a year earlier.

It’s worth noting that the Saudi government proactively increased exports in February to the highest level since April 2023, to prepare for potential US strikes against Iran.

Other Middle Eastern oil producers: Iraq’s situation the worst?

Among other Middle Eastern oil producers, the UAE, with its daily transportation volume of 1.5 to 1.8 million barrels via the Habshan-Fujairah pipeline bypassing the Strait of Hormuz, has somewhat mitigated the impact of the blockade. However, estimates suggest that the UAE’s oil exports in March still declined by $174 million year-over-year. Previously, attacks on Fujeirah port caused suspension of loading operations.

Among Gulf producers, Iraq’s oil revenue in March saw the largest decline—down 76% year-over-year to $1.73 billion. Kuwait followed closely, with a 73% drop to $864 million.

Iraq’s State Oil Marketing Organization (SOMO) stated on April 2 that March oil revenues were about $2 billion, aligning with industry estimates mentioned above.

A positive note is that the Iranian military spokesperson last weekend stated that “brotherly Iraq” is exempt from Iran’s restrictions on the Strait of Hormuz, with restrictions only targeting “hostile countries.” If this exemption is implemented, it could theoretically free up to 3 million barrels per day of Iraqi oil shipments.

Adriana Alvarado, Vice President of Sovereign Ratings at Morningstar DBRS, said that Gulf governments have multiple ways to bolster their finances—either by using fiscal reserves or issuing bonds in financial markets. She added, “Except for Bahrain, Gulf countries have enough fiscal space to withstand shocks—government debt levels are moderate, below 45% of GDP.”

However, the long-term impact remains uncertain. Some Western oil companies and policymakers have lobbied to increase fossil fuel investments to prevent supply shocks, but some analysts believe renewable energy offers the best safeguard.

责任编辑：王奕博