The Heavy Cost of Bypassing the Strait of Hormuz: The Hidden Reality Behind the Return of Persian Gulf Oil Exports
At a Glance: Persian Gulf oil exports in September returned to around 16.5 million barrels per day, nearing pre-war levels. However, only 60% of these shipments passed through the Strait of Hormuz, compared with 83% before the war. Exporters are using […]
Persian Gulf oil exports returned to around 16.5 million barrels per day in September and were close to pre-war levels; However, only 60% of these shipments passed through the Strait of Hormuz, compared to 83% before the war.
Exporters have adapted to the new conditions by using pipelines, alternative ports and extensive ship-to-ship oil transfers; But this mechanism has become more costly and ineffective and is under increasing pressure. Sea freight and security costs are still high.
The flow of oil in the Middle East has experienced a remarkable return after a sharp drop; So that the volume of exports has returned to the levels close to before the war, although the traffic of oil tankers through the Strait of Hormuz is still much lower than the normal level.
Estimates by Standard Chartered Bank show that the export of crude oil and gas condensate from the Persian Gulf in September, excluding Iran and including alternative routes such as Fujairah and the Red Sea, has reached about 16.5 million barrels per day; A figure that returns to the pre-war level. However, only 60% of these shipments have passed through the Strait of Hormuz; While this share was 83% before the war.
Standard Chartered believes that this statistic indicates the resilience of the region's export system rather than indicating the return to normal conditions. Exporters have found ways to move oil, but they do so less efficiently and at much higher costs.
This system has been forced to use more complex alternative solutions; Especially a chain of oil transfer from one ship to another that requires a large number of vessels. Smaller tankers increasingly take crude through the Strait of Hormuz and then transfer their cargo to larger vessels in the Sea of Oman. At the same time, exporters have increased the use of pipelines and ports that allow bypassing the strait.
The southern route along the coast of Oman has become one of the important routes for smaller vessels passing through the Strait of Hormuz. According to Standard Chartered, ship-to-ship oil transfer capacity appears to have reached its limit, vessel operations remain inefficient, voyage times have increased and maritime transport and security costs remain at high levels.
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Saudi Arabia is perhaps the clearest example of the successes and limitations of this adaptation. After the east-west pipeline was damaged in early September, the country's oil export route shifted sharply to the east coast.
Standard Chartered estimates show that Saudi Arabia's total oil exports increased to around 6.9 million barrels per day in September from 2.45 million barrels per day in August. In just one week, 19 very large crude oil tankers (VLCC) passed through the Strait of Hormuz.
The resumption of the east-west pipeline and oil loading at Yanbu port has provided another route to access global markets and reduced the immediate risk of production stoppage. However, the volume of oil transportation through the pipeline is still lower than its nominal capacity, and this infrastructure is also exposed to more possible attacks.
Using alternative routes has also brought high costs. Some cargoes loaded in Oman's coastal waters have reportedly been offered at discounts of up to $9 per barrel to compensate for additional logistics costs.
Improving the physical flow of oil has reduced the possibility of severe supply shortage scenarios and can gradually remove part of the risk from the supply shortage from the price of oil. However, the transportation of these cargoes still comes with higher costs, longer travel times, greater dependence on tankers, and less spare capacity in the logistics network.
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Standard Chartered says that this improvement is considered a reduction factor for prices compared to the conditions based on which the market expects the continuation of widespread disruption in the physical supply of oil; But it is not enough to return the risk premium to pre-war levels.
Exporters have shown that they can deliver a much larger volume of crude oil to the market than previously expected; However, the system's capacity to absorb another major disturbance has been reduced.
The temporary success of Persian Gulf oil exporters has also changed regional equations. Iran's crude oil exports by sea reached almost zero in September; While this figure before the war was about 1.7 million barrels per day. The decline came after the US naval blockade severely limited Tehran's ability to transport crude oil through the Strait of Hormuz.
Iran continues to stand firm and reiterated on Sunday that the Strait of Hormuz will not reopen until the United States implements seven conditions contained in the June interim agreement.
Abbas Araghchi, Iran's foreign minister, also announced separately that Tehran's recent proposal could provide the basis for the reopening of the Strait of Hormuz within seven days if Washington accepts Iran's conditions.
Tehran has denied reports that Iran has agreed to international nuclear inspections in exchange for easing sanctions. According to Araghchi, Iran hopes that Washington will follow the path of diplomacy, but warned that if America decides to take more military actions, Iran is more ready to respond than in the past.