Persian Gulf oil exports have climbed above prewar levels despite intensifying attacks on shipping in the Strait of Hormuz, as tankers adapt to the risks with US protection and alternative routes help keep supplies moving.Oil flows from the Middle East, including shipments through the Strait of Hormuz and alternative routes, averaged more than 24 million barrels a day in the week ending October 18, exceeding the prewar average of 23.3 million barrels a day, according to ship-tracking firm Kpler.However, shipments through the Strait of Hormuz remain below their earlier levels. Preliminary estimates put average flows through the strait, including offshore transfers in the Gulf of Oman, at around 14 million barrels a day during the same period, about 82% of prewar volumes, the Wall Stree Journal reported.The recovery comes as the risks to shipping remain high. Around 30 attacks on vessels have been reported in October, accounting for about 20% of all ship attacks recorded during the war, according to Michelle Wiese Bockmann, a senior analyst at maritime intelligence firm Windward.
How oil is moving despite the attacks
An improvised shipping system, supported by US protection, has helped tankers continue carrying crude through the high-risk waterway. Some vessels make short trips into the Gulf to load oil before travelling through Hormuz and transferring their cargo to other ships near Oman for onward delivery.Tankers often switch off their tracking signals during parts of these journeys. American air cover provides some protection along a corridor near the Omani coast, although vessels remain vulnerable to attacks.Pipelines running across Saudi Arabia and the United Arab Emirates are also helping exporters bypass the strait. Around 40% of non-Iranian crude shipped out of the Gulf in September travelled through routes that avoided Hormuz, compared with 17% before the war, Kpler estimated.“The big picture is that the system for shipping through a dangerous Strait of Hormuz is now well-established and the risk appetite of those involved in exporting oil has risen,” said Hamad Hussain, a senior commodities economist at Capital Economics.The increased willingness to take risks is partly driven by the potential returns. Traders can earn around $20 more per barrel by reselling Iraqi oil than before the war, according to Homayoun Falakshahi, Kpler’s head of crude oil analysis. That translates into an additional $40 million on a supertanker carrying a typical cargo of two million barrels.Shipowners are also offering higher payments to attract crews willing to make the dangerous crossings. One China-based ship-staffing company offered seafarers as much as $25,000 for a round trip that typically takes one or two weeks, The Wall Street Journal reported.“The volumes remain high despite rising attacks, because profits make it worth the risk,” Falakshahi said.
Attacks raise the cost of shipping
The continued movement of oil has not made the route safe. Iran’s Islamic Revolutionary Guard Corps has used drones and missiles against vessels attempting the crossing, while small boats have also been used to target shipping.The risks were illustrated by the Tanzania-flagged supertanker “Loyalty”, which entered the Persian Gulf twice in September and October to load Iraqi crude. After transferring two million barrels of oil to another tanker in the Gulf of Oman in early October, it returned to the Gulf for another cargo.On October 16, the vessel was struck by a rocket-propelled grenade fired from a small boat, maritime security company Vanguard said. The projectile damaged a freshwater tank while the tanker was carrying two million barrels of Iraqi crude, according to a crew member.The danger has pushed up the cost of transporting oil. Freight for a supertanker carrying Gulf crude to China approached a record $37.37 per barrel this week, Kpler said. War-risk insurance premiums have risen to as much as 10% of a vessel’s value, from less than 3% before the conflict, according to Windward.“In April, the problem was a shortage of crude. In October, it is the cost of moving it,” said Natasha Kaneva, head of the global commodities strategy team at JPMorgan.Brent crude rose to around $108 a barrel on Tuesday, reflecting concerns that the improvement in oil flows may not last if fighting intensifies again. With global inventories thinning, any renewed disruption could leave markets with limited room to absorb a supply shock.
Iran’s leverage over oil flows weakens
The recovery in regional exports contrasts with the pressure on Iran’s own oil trade, which has been constrained by a US maritime blockade.Tehran has sought to reassert control over Hormuz, warning that neighbouring countries should not be able to export oil if Iran cannot ship its own. But the continued movement of crude through the strait and alternative routes has weakened its ability to deter regional shipments.“Iran would have to be more aggressive to achieve the same degree of control it previously possessed over oil flows from the region,” Hussain said.That leaves the market facing two competing realities: oil exports have recovered beyond prewar levels, but the cost and danger of moving crude remain elevated. Whether the recovery can be sustained will depend on the security of shipping routes and whether the conflict escalates further.
