Oil & Energy

Google Ad

The Strait of Bab el-Mandeb is a key route for oil and gas from the Middle East that can be disrupted and affect the price of crude oil if choked off.  Saudi Arabia has temporarily halted oil shipments through the waterway in the past.

Bab El Mandeb

In July Saudi Arabia halted oil shipments through the Bab el-Mandeb strait after two Saudi VLCCs were attacked by Yemeni Houthi militia for around a week.

The Bab al-Mandeb strait is on the other side of the Arabian peninsula from the Straight of Hormuz.  The Strait of Bab el-Mandeb is a narrow passage between the horn of Africa and the Middle East etween Djibouti and Yemen. The straight  connects the Red Sea and the Gulf of Aden. The waterway is the link between the Mediterranean and the Indian Ocean.

While this choke point in 2016 saw just 5 mb/d of oil shipped in 2016 its significance has risen as the majority of oil that has to pass through the Suez Canal/SUMED pipeline must first pass through the Bab el-Mandeb. With the war in Yemen nearby ships are at risk, added to the existance of pirates and the threat of Iran.

Oil markets can be subjected to market rumor and one that rears it's head (usually when the managed money market is very long) is Middle East threat news, These often come in thin market times where news algorithms do the most damage.

Most oil that has to pass through the Suez Canal/SUMED pipeline must first pass through the Bab el-Mandeb, This traffic includes some of Asia's crude oil imports from Libya, Kazakhstan, Azerbaijan, North Sea and Russia also transit Bab al-Mandeb. For the Kingdom the strait is critical for it's own Red Sea refineries with both the 400,000 b/d Yanbu refinery and the 400,000 b/d Rabigh refining and petrochemical plant mainly supplied with crude oil produced in its eastern region and shipped from the Persian Gulf.

The ongoing risk is the proximity to the war in Yemen.

This can give opportunity (or pain) to hedgers and speculators. The key is to understand the true risk, the over extension or whether it is the beginning of something significant.

Arabian Peninsula

In this series on chokepoints we look at the four major pressure paths either side of the Arabian Peninsula. The other three choke points are:

  1. The Straight of Hormuz
  2. The Straight of Malacca
  3. The Suez Canal and SUMED Pipeline.

From The Traders Community Research Desk

 

Log in to comment
Discuss this article in the forums (0 replies).