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

Industry’s latest analysis has found that the “anti-intuitive” windfall Middle East’s largest oil producer, Saudi Arabia, is getting from the blockade of the Strait of Hormuz and the ensuing surge in global oil prices—despite the fact that countries lacking alternative shipping routes are still losing tens of billions of dollars.

Since the end of February, when the United States and Israel launched airstrikes against Iran and the conflict escalated, Iran has effectively blocked the Strait of Hormuz—through which roughly one-fifth of the world’s oil and liquefied natural gas has historically been transported. Even though Iran later said it would allow ships not associated with the United States or Israel to pass, meaning some tankers can still traverse this narrow waterway, energy markets have nonetheless been hit by unprecedented volatility.

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

What’s interesting is that, although many regions around the world are facing inflation spikes and economic losses driven by rising energy prices, for Middle East oil producers, the degree of impact actually depends on their geography.

Although Iran controls the Strait of Hormuz, Saudi Arabia, Oman, and the UAE can divert some oil around the strait via pipelines and ports. By contrast, because Iraq, Kuwait, and Qatar lack alternative routes to international markets, their oil exports have stalled.

One indisputable fact is that, as the conflict among the United States, Israel, and Iran has led to the Strait of Hormuz being effectively blocked, most Gulf countries’ crude and condensate export volumes have indeed fallen. Estimates of March export data from industry insiders show that, year over year, the nominal oil export revenues of Iraq and Kuwait have each plunged by roughly three-quarters.

However, data on the other side shows that Iran’s oil export revenues rose by 37% year over year, Oman’s increased by 26%, and Saudi Arabia’s oil revenues grew by 4.3%.

Among this, Saudi Arabia’s “no decrease, but an increase” in oil export revenues is especially striking. Industry estimates indicate that, among countries facing export constraints via the Strait of Hormuz (here excluding Iran, which actually controls the strait, and Oman’s major ports, which are located outside the strait), in theory only Saudi Arabia managed revenue growth in March. The rise in oil prices offset the relatively smaller decline in its export volumes, and even helped push revenues higher.

This estimate uses export-volume data provided by the vessel-tracking company Kpler, and where available combines it with JODI data; it multiplies by the average Brent crude price and compares it with the same period last year. For the sake of simplifying the calculation, Brent crude is used as the benchmark price here, even though many grades of crude are priced with reference to other Middle East benchmarks—and those Middle East oil grades currently trade at a significant premium to Brent crude.

Kudos to Saudi Arabia’s “east-west pipeline”

For Saudi Arabia, growth in oil export revenues means higher royalties and tax receipts from the state-owned oil major Saudi Aramco, whose vast majority of equity is held by the government and its sovereign wealth fund.

After Saudi Arabia poured massive resources into diversifying its income and reducing reliance on oil, the current rise in oil prices is especially beneficial for the country. And the biggest contributor to maintaining oil revenue growth even under the strait blockade, of course, is none other than the country’s east-west oil export pipeline.

Saudi Arabia’s largest oil export pipeline is the 1,200-kilometer east-west pipeline. Built during the Iran-Iraq War in the 1980s, it was designed to bypass the Strait of Hormuz. The pipeline connects the eastern oil fields with Yanbu Port on the Red Sea coast, and is currently operating at full capacity with the expanded daily throughput of 7 million barrels per day.

Saudi Arabia typically consumes about 2 million barrels per day domestically, with the remaining roughly 5 million barrels per day used for exports. Shipping data shows that although the Yanbu port hub was attacked on March 19, the volume of tankers loaded at Yanbu during the week of March 23 still reached nearly full capacity—about 4.6 million barrels per day.

According to Kpler and JODI data, in March the total Saudi crude oil export volume fell 26% year over year to 4.39 million barrels per day. Even so, the rise in oil prices still made the value of these exports about $558 million higher than a year earlier.

It is worth noting that the Saudi government had foreseen this and boosted exports in February to the highest level since April 2023, to guard against a U.S. strike on Iran.

A look at other Middle East oil producers: Is Iraq the worst off?

Among other Middle East oil producers, the UAE, helped in part by its Habshan-Fujairah pipeline that runs 1.5 million to 1.8 million barrels per day and bypasses the Strait of Hormuz, has somewhat mitigated the impact of the blockade. But estimates indicate that the country’s oil export value in March still fell by $174 million year over year. Previously, the port of Fujairah was hit by a series of attacks, leading to a suspension of loading operations.

Among the Gulf oil-producing countries, Iraq saw the largest decline in oil revenues in March—down 76% year over year to $1.73 billion. Kuwait followed closely, down 73% to $864 million.

On April 2, Iraq’s State Oil Marketing Organization (SOMO) said that March oil revenues were about $2 billion, close to the above estimates by industry insiders.

But one piece of good news is that, the Iranian military spokesman said over the weekend, “brother nation Iraq” is free from any restrictions imposed by Iran on the Strait of Hormuz, and those restrictions are only for “hostile states.” If the exemption is implemented, in theory it could free up as much as 3 million barrels per day of Iraq’s oil cargo volume.

Adriana Alvarado, vice president of sovereign ratings at Morningstar DBRS, said Gulf governments have multiple ways to shore up their finances: they can tap fiscal reserves and also enter financial markets to issue bonds. She added, “With the exception of Bahrain, the Gulf states have enough fiscal space to cushion shocks—government debt is moderate, below 45% of GDP.”

However, in the long run, the impact is still unclear. Some Western oil companies and politicians previously lobbied for increased investment in fossil fuels in an attempt to mitigate supply shocks, but some analysts believe renewable energy is the best safeguard.

（Source: Caixin Finance）