Saudi Arabia hikes Arab Light crude to record premium for Asian refiners as US-Iran war continues

Saudi Arabia has sharply increased the price of its key oil grade sold to Asian buyers, reaching a record premium, as escalating tensions in the Middle East and concerns over Iran potentially restricting the Strait of Hormuz disrupt global energy markets.

The state-owned company Saudi Aramco raised the price of its flagship Arab Light crude for next month to a premium of $19.50 above regional benchmarks for Asian refiners, according to a Bloomberg-reported price list.

However, this increase was still only about half of what analysts had expected in a Bloomberg survey. Traders noted that pricing was especially difficult this month due to extreme volatility in Middle Eastern oil benchmarks during the conflict, along with a late-month drop in prices.

Benchmarks such as Dubai and Oman crude, used by Saudi Arabia to set its prices, have shown increased instability, partly because the conflict has reduced the availability of the types of oil used to determine regional pricing. Some Asian refiners have suggested alternative pricing methods, including switching to the global Brent benchmark.

Despite this shift, Saudi Aramco has continued to base its official pricing on oil loaded at Ras Tanura, complicating costs for buyers. The company has instructed customers to place separate orders specifying how much crude they want delivered from each port, noting that only the Arab Light grade will be available for loading from Yanbu.

The ongoing conflict and the shutdown of the Strait of Hormuz have pushed Brent crude prices up by more than 50%. In response, Saudi Aramco increased the price of its Arab Light crude by $17 per barrel for May, the largest hike ever recorded.

It also applied the same price increase to all its other crude grades sold to Asia, even though some of those grades are currently unavailable due to the closure of Hormuz. Prices for shipments to regions like the United States and Northwest Europe were also raised to record-high premiums.

Among Gulf producers, only Saudi Arabia and the United Arab Emirates have meaningful alternative export routes that bypass the Strait of Hormuz. Aramco is now operating its pipeline to the Red Sea at full capacity of 7 million barrels per day and is exporting nearly 5 million barrels daily from there, around 70% of its pre-war export levels.

Saudi Arabia sends the majority of its crude oil to Asian markets, making the region its biggest customer base. Key buyers include China, India, Japan, and South Korea, all of which rely heavily on Middle Eastern oil to meet their energy demands, as per The Sunday Guardian.

These nations have extensive refining sectors and depend on steady oil supplies to power industries, transportation systems, and electricity generation. As a result, any disruption in Gulf exports has a direct impact on their economies, leaving them highly sensitive to fluctuations in oil prices. Although Saudi Arabia also supplies oil to Europe and the United States, Asia remains the primary destination for its exports.

Meanwhile, Aramco has largely halted production of its Medium and Heavy crude grades, focusing instead on supplying Light and Extra Light oil from Yanbu, as confirmed by CEO Amin Nasser during a conference call on March 10.