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Saudi Arabia is able to divert the bulk of crude exports to the Red Sea
By Andrey Biryukov
The blockade of the Strait of Hormuz is creating an economic split among oil exporters in the Persian Gulf, with Saudi Arabia and Oman set for a windfall and others including the United Arab Emirates seeing a drop in petrodollar income.
Saudi Arabia is gaining a revenue edge over most of its Gulf Arab neighbours as it is able to divert the bulk of crude exports to the Red Sea. Higher prices more than compensated for lost shipments through the strait, according to Goldman Sachs Group Inc. The UAE, by contrast, is likely suffering a steep drop in oil income, as its own detoured barrels only partially mitigate the impact from Hormuz’s closure.
Goldman estimates weekly oil revenue rose 10 per cent relative to pre-war levels in Saudi Arabia and fell around 25 per cent in the UAE, Middle East and North Africa analyst Farouk Soussa wrote in a note published last week.
The divergence may feed into the intensifying rivalry between the Middle East’s two biggest economies, which was at the heart of UAE’s shock decision to quit OPEC this week. Free from quotas imposed by the Saudi-dominated group of oil producing nations, the UAE can — once the Hormuz strait reopens — pump more oil and monetize its reserves before demand tapers off.
Since the war began in late February, Riyadh has rerouted around 4 million barrels of oil a day to its East-West pipeline, which connects fields to the port of Yanbu. The UAE ramped up oil shipments through its own pipeline that empties beyond Hormuz. It loaded about 2 million barrels each day in March, still only half what it was exporting in February.
Oman, which has its main oil ports outside of the strait, hasn’t had to cut exports and has seen its revenue surge by 80 per cent since the conflict erupted, Goldman estimates. Kuwait, Qatar, Bahrain and Iraq are in the worst positions. Their income from oil and natural gas has cratered as they have little way of bypassing Hormuz.
The difference in oil revenue is reflected in the performance of Gulf Cooperation Council countries’ stocks. Omani and Saudi equities are easily outperforming those of the other four states.
The financial implications for one of the world’s most important energy-exporting regions are severe. The six GCC members are losing about US$700 million in oil revenue every day the strait is closed, Goldman said in a separate note on March 20. It estimated that losses would reach US$80 billion after two months.
Crude prices have jumped since the start of the Iran war, which led to an almost complete shutdown of the waterway through which a fifth of the world’s oil exports previously transited. Global benchmark Brent traded above US$126 a barrel on Thursday, the highest since the aftermath of Russia’s invasion of Ukraine in 2022.
Oil revenues only partially reflect the fallout from war. Iran’s airstrikes across the Gulf states, in retaliation for U.S.-Israeli attacks, damaged their infrastructure and hit their non-oil economies as tourists and other visitors stayed away. Goldman estimates the UAE’s annualized fiscal surplus of six per cent of gross domestic product before the war was almost entirely erased and sees only a marginal improvement of one percentage point in oil-dependent Saudi Arabia’s deficit.
The war has led to Oman’s fiscal balance swinging from a deficit of seven per cent of GDP to a surplus of eight per cent, according to Soussa. Bahrain, Qatar and Kuwait have deficits of 17 per cent, 20 per cent and 40 per cent respectively, he estimates.
JPMorgan Chase & Co. sees the GCC’s fiscal balance having deteriorated by around 3.6 per cent of gross domestic product during the war.
Aramco windfall
If the blockade is lifted in the short term, Soussa notes, some of the damage to public finances may be reversed.
Saudi Aramco’s first-quarter corporate results, due May 10, may offer more evidence of the kingdom’s resilience.
The oil giant is expected to post its highest profit since the third quarter of 2023, according to the Bloomberg consensus of analyst estimates.
Net income is expected to hit US$32 billion in the period, with higher prices and seasonally lower costs offsetting a drop in production, Citi analysts wrote in a note.
Debt market
Since the Iran war began, sovereign and corporate borrowers in Qatar and Kuwait, typically infrequent issuers in the global bond market, raised billions of dollars through private bond sales, data compiled by Bloomberg shows. Bahrain turned to the UAE for a currency swap of US$5.4 billion.
UAE issuers, including Abu Dhabi, also tapped markets, though less heavily than in the same period a year earlier. Saudi Arabia, usually the region’s biggest borrower, scaled back issuances.
For the GCC as a whole, Goldman’s Soussa estimates that the net government borrowing requirement has doubled from around US$1.7 billion a week to US$3.5 billion. “We think this will prompt authorities to continue to seek to optimize funding sources as long as the disruption lasts,” he said.
Bloomberg.com
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