Refining companies are testing crude from as far as Venezuela and Angola to ensure supplies remain unhindered amid escalating attacks by Yemen’s Iranian-backed Houthi militants on Saudi Arabian vessels at Bab al-Mandab Strait, the Red Sea chokepoint that accounts for nearly 12% of global oil shipments.
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“We diversified our crude sourcing outside of the Strait of Hormuz, exploring multiple geographies including two new crude grades from Venezuela and Angola,” Vetsa Ramakrishna Gupta, finance director at state-run Bharat Petroleum Corp told ET.
Global energy markets turned jittery after the Houthi rebels’ attack on Saudi vessels, which is expected to cause extensive disturbance to oil movement from the Gulf. The cost of a barrel of Brent crude, a key benchmark, topped $100 in early trade Thursday, the highest level since the end of May. It is up more than 36% for the month.
Hindustan Petroleum Corporation said several preferred crude grades became inaccessible as they were located on the other side of the Strait of Hormuz, compelling the company to process non-regular grades to maintain refinery throughput and ensure uninterrupted fuel supplies.
“We had to make decisions based on availability rather than optimisation,” said Vikas Kaushal, managing director. “At the beginning of the year, we always do a term and a spot mix. This time in the first quarter, we hardly got anything from our term contracts, because a lot of the term contracts were sitting on the other side of Strait of Hormuz.’’Also Read: India loses Russia oil discount as Red Sea, Hormuz risks upend crude markets
The latest attacks open a new front in the months-long regional conflict, which is once again throttling tanker flows from the Persian Gulf as the ceasefire between the US and Iran collapses into a new round of hostilities.
India’s state-run refiners are weighing the alternative of sending crude through the Suez Canal, before transferring the cargo to very large crude carriers at a European hub for delivery to the South Asian nation by sailing around Africa, Bloomberg News reported.
If cargoes originally planned on the shorter route—via the Red Sea, Bab el-Mandeb strait and onward to Asia—are rerouted, that would result in longer voyages via Egypt, and then around South Africa. That stands to lengthen journey times by as much as a month, the traders said. The latest developments come as exports from major producer Kazakhstan are endangered by the Russia-Ukraine war, and the world’s oil inventories are depleted by months of conflict.