Saudi Arabia will donate fuel to Yemen, throwing a second lifeline in six months to its southern neighbour to prevent a shortage there from escalating into chaos, industry sources said on Thursday.

State oil giant Saudi Aramco will buy oil products from the market but will ask the supplier to discharge the cargo in Yemen instead of in Saudi ports, industry sources familiar with the matter told Reuters. The amount Yemen will receive from Saudi in January will be around 500,000 tonnes.

Nearly a year of protests demanding the end of President Ali Abdullah Saleh's 33 year rule has brought Yemen to the brink of a civil war.

"There is a government to government agreement between Yemen and Saudi Arabia where Aramco is buying the gasoline and gasoil and paying for it," one source familiar with the deal said.

Although a small oil producer, Yemen's location on the strategically important Bab al-Mandab strait, through which millions of barrels of oil are shipped between Asia, Europe and the Americas, makes instability there a risk to global trade.

Secure passage through the vital shipping lanes is in the spotlight at a time tensions between Iran and the West have escalated after Tehran's threat to shut the Straits of Hormuz, the world's most important oil export route.

"It is a deal to once again show who is their friend," another source with direct knowledge of the Saudi deal said. "Technically, it is a donation, it looks like a favour. But it is not," the source added.

It is the second such action. Yemen relied on 3 million barrels of Saudi-donated crude oil to run its refinery in June, when its main pipeline was shut after blasts, unleashing a fuel shortage which saw people getting killed at dry petrol stations.

The pipeline, which was repaired during summer, is shut once again, after consecutive blasts on it in October. The lack of crude flow in the pipeline has also forced the Aden refinery, which mainly produces to meet the domestic fuel demand, to halt operations.

Shipping premium

By asking the suppliers to ship the cargo directly to Yemen, Saudi Arabia will avoid sailing its own oil tankers to this risky area but will pick up an expensive bill that includes a shipping premium.

Increasing chaos in Yemen has created a power vacuum and seen Somali pirates take advantage and ramp up attacks, analysts say, making Yemeni waters off-limits for several international trading companies.

"It is not clear who the lucky suppliers are yet," the source said, referring to the traders that would be shipping the barrels to Yemen.

The sources said the 500,000 tonnes to be donated to Yemen next month was made up of gasoline, diesel and some fuel oil.

"They have already started buying some of it from the market," the second source said. "Whether or not they will continue, they will decide later."

Some Gulf-based traders see the continuation of these shipments as unlikely. "This is when the demand in Saudi Arabia is minimum," a Gulf-based trader said. "Once their own demand starts climbing up, they won't supply Yemen," he said.

Saudi Arabia, the world's top exporter of crude oil, is an importer of gasoline and gasoil and its gasoline imports are set to rise at least in January, when it will partially shut its Riyadh refinery for maintenance.

"This will definitely tighten up the AG market in Q1," a gasoline trader said. Aramco also plans to shut some units at its largest Ras Tanura refinery for maintenance in March. – Reuters