Blockage in the Strait of Hormuz drives up oil prices, Saudi Aramco's first quarter profits soar

"A continued blockade of the Strait of Hormuz would be a ‘disaster’ for the global oil market, and even if shipping resumes immediately, the market would be unable to return to normal in a short time.”

Against the backdrop of escalating tensions in the Middle East and near-paralysis of shipping through the Strait of Hormuz, the world’s largest oil exporter, Saudi Aramco, saw significant profit growth in the first quarter of this year.

The financial report released by the company on May 10 shows that for the three months ending March 31, net profit reached around $33.6 billion, up approximately 26% year-on-year. During the same period, revenue increased by nearly 7% year-on-year, to $115.5 billion. Despite attacks on some infrastructure and temporary disruptions to exports from some Gulf ports, international oil prices soared and the opening of alternative transport routes significantly boosted the company’s performance.

The Strait of Hormuz handles about one-fifth of all global shipments of oil and natural gas, making it a critical route in the world’s energy supply chain. Since the outbreak of the US-Israel-Iran conflict at the end of February, the strait has, in effect, been under a prolonged blockade, creating tremendous pressure on Middle East crude exports.

To bypass the Strait of Hormuz, Saudi Aramco has continually increased capacity on the “East-West pipeline,” transporting crude from the eastern oilfields of Saudi Arabia to the Red Sea port of Yanbu for export.

Saudi Aramco President and CEO Amin Nasser stated: “The daily transport capacity of 7 million barrels through the East-West pipeline has reached maximum throughput. It has proved to be a critical supply artery that helps alleviate the impact of global energy shocks and supports customers affected by restrictions on shipping through the Strait of Hormuz.”

Besides its export functions, this pipeline network is also connected to Saudi domestic refining systems. Of the total capacity, about 2 million barrels per day are used to supply refineries on the west coast, which in turn supply fuel products to the domestic market and international buyers of refined oil products.

Market analysts believe that, although the East-West pipeline cannot fully replace the scale of tanker transport by sea, its high-capacity operation has effectively eased the global supply crunch and prevented the energy crisis from deteriorating further.

As transport through the Strait of Hormuz remains restricted, the international energy market has seen sharp and rapid volatility. The benchmark international Brent crude oil price has now risen to about $100 per barrel, about 40% higher than before the current conflict erupted.

Nasser had earlier warned that a continued blockade of the Strait of Hormuz would spell a “disaster” for the global oil market, and even if the strait reopened immediately, it would take considerable time for the market to normalize.

In an emailed statement to Bloomberg, he further pointed out: “Supply disruptions are expected to persist, and the market may not return to normal until 2027.”

Industry insiders believe that, although high oil prices currently help boost the profitability of energy companies including Saudi Aramco, the global energy supply chain continues to face significant uncertainty. The future direction of the market will largely depend on whether the Strait of Hormuz can reopen and whether tensions in the Middle East escalate further.

Against the backdrop of profit growth, Saudi Aramco stated that it will maintain its quarterly dividend at $21.9 billion. Previously, the company had raised its quarterly dividend by 3.5% at the end of last year.