Saudi oil export strategy hits new hurdle as Red Sea insurance costs soar

• War risk premiums for tankers at Yanbu port jumped from under 1% in early July to around 3%, while ports near Yemen saw rates rise from 1% to as high as 7%, nearly matching Hormuz strait levels of 6-9%
• Saudi Arabia diverted 4 million barrels per day (4% of global supply) through its East-West pipeline to Red Sea ports after Iran constrained Hormuz exports, but shut the pipeline on September 11 following drone attacks
• The US provides aerial protection for ships in Hormuz but not in the Red Sea, where Houthis have seized territory and vowed to target Saudi-linked vessels, making Red Sea transit more challenging despite billions invested in alternative infrastructure

Summary

War risk insurance premiums for oil tankers loading at Saudi Arabia's Red Sea ports have tripled since early July, creating significant obstacles for the kingdom's oil export strategy. Quoted premiums at Yanbu port have risen to approximately 3% of vessel value from under 1% in July, while ports near Yemen like Jizan face rates as high as 7%—nearly matching the 6-9% range for Strait of Hormuz transits.

The cost surge follows attacks by Yemen's Iran-aligned Houthis targeting Saudi-linked vessels near the Bab el-Mandeb strait. Saudi Arabia had diverted roughly 4 million barrels per day (4% of global supply) through its East-West pipeline to Red Sea ports after Iran constrained Hormuz exports in March. However, the pipeline was shut September 11 following drone attacks attributed to Iraqi militias.

Key Market Implications:

• A 7-day voyage from Yanbu now costs approximately $3 million in war risk premiums, up from $100,000 pre-conflict
• Southern Saudi ports or Hormuz routes cost around $7 million for similar coverage
• Tankers without Saudi connections pay only 0.2-0.3% for Red Sea transits
• Average prices for older tankers have exceeded $100 million as producers seek vessel ownership

Critical Distinction:

Unlike Hormuz, where the US provides aerial support for shipping, no comparable protection exists in the Red Sea despite EU security presence. Shipping executives report that navigating Hormuz is currently easier than the Red Sea for Saudi-connected vessels.

Saudi Arabia's multi-billion dollar investment in alternative export infrastructure now faces constraints similar to other Gulf producers, fundamentally undermining the Red Sea route as a viable backup channel.