Middle East oil exports are recovering despite Strait of Hormuz tanker attacks, but the bigger problem is getting crude safely to buyers

Middle Eastern oil exports are recovering faster than the security situation around the Strait of Hormuz would suggest. But the return of crude to international markets is being achieved through a complicated and expensive shipping network rather than a return to normal conditions. Gulf oil flows excluding Iran recovered to more than 81% of pre-war levels in September, while crude exports from the wider Middle East exceeded pre-war levels on 14 days during the month, according to maritime intelligence firm Kpler, as reported by Al Jazeera.

The increase comes despite repeated attacks and threats against tankers.

Shipping companies are also facing higher freight rates, insurance premiums and security costs, making it more difficult to move crude even when physical supplies are available.


That creates a crucial distinction in the current oil market: producing oil is one problem; getting it safely to the buyer is another.

Gulf oil is moving again, but Hormuz remains dangerous

The Strait of Hormuz is among the most crucial energy corridors globally. Before the outbreak of the war, about 125 big ships would travel via this corridor daily, accounting for about one-fifth of the world's crude oil and liquefied natural gas, according to Al Jazeera.

The security picture has deteriorated even as exports have recovered.

There were at least seven reports related to the tanker during the past week; meanwhile, at least one incident of attack took place every day in the Strait of Hormuz or Gulf of Aden since October 2, according to the United Kingdom Maritime Trade Operations agency, reported Al Jazeera.

There was even another report that the ship passing through the strait close to Oman was warned by Iran's Islamic Revolutionary Guard Corps of attack if not turning back.

Yet crude continues to leave the region.

The seven-day average from Kpler touched 18.3 million barrels per day by September 30, which is in contrast with the 12-month average of around 18 million barrels per day. The 14-day average of Vortexa for crude and condensate exports from the Middle East was 18.6 million barrels per day, as reported by Al Jazeera.

The figures show that the disruption has not eliminated Gulf oil supplies. Instead, producers, tanker operators and traders have found ways to keep cargo moving.

Saudi Arabia is using pipelines and offshore transfers

The most notable transformation has been the increased adoption of alternative transportation routes.

Saudi Arabia has been utilising its East-West pipeline system that transports oil from the eastern regions of Saudi Arabia to Yanbu on the Red Sea coast. This system enables some of the oil to travel directly to export terminals without having to pass through the Strait of Hormuz.

But pipeline capacity alone cannot replace the normal maritime system.

From Al Jazeera’s report, another technique that has become increasingly popular includes ship-to-ship transfers, especially in the vicinity of Sohar port in Oman and the waters beyond the major choke point.

In ship-to-ship transfer, the crude is transferred from one tanker to the other out at sea. A smaller shuttle or a tanker brings crude oil up to the point of transfer, from which a large tanker will transport it on towards international markets.

The technique comes in handy where the tankers do not want to transit the whole route through the hazardous waters.

This is also a very complex process compared to regular loading at secure ports.

The ships have to manoeuvre in tandem, establish connections for transfer hoses, and cope with weather and sea conditions in transferring millions of barrels of crude. In addition, some of the vessels in the shadow shipping industry have shut off their automatic identification systems.

More oil is moving, but the shipping system is under strain

The workaround has helped restore exports, but it comes with a price.

Al Jazeera reported that the increased use of shuttle tankers and offshore transfers has placed additional pressure on tanker availability, while freight and insurance costs have risen.

That means the headline number for oil exports does not tell the whole story.

A barrel of crude arriving at a refinery in Asia is no substitute for a barrel making its way through the traditional pre-war supply chain process. The oil companies might require extra shipping vessels and more costly insurance arrangements in order to transport the same barrel to its intended destination.

There have been some changes in Saudi Arabia’s exporting tactics due to disruptions to parts of its East-West Pipeline. As Al Jazeera has previously reported, the damage caused by the attack resulted in the loss of 4 million to 5 million barrels per day of its exporting potential while repairs were ongoing.

Sohar in Oman and Fujairah in the UAE have thus become significant points where crude can be exported. Their positioning gives oil companies the choice to transport their products through alternative means rather than via the Hormuz Strait.

But those alternatives have limits.

There are only so many tankers available, and ships cannot be manufactured or repositioned overnight. Insurance companies also face difficult decisions when vessels operate in an active conflict zone.

The biggest risk may be another disruption

For now, the workaround is helping keep international oil markets supplied. But its durability depends on several moving parts remaining intact.

The East-West pipeline must remain operational. Tankers must continue to be available.

The offshore transfer stations need to continue functioning, and shipping firms should be prepared to take risks.

According to Al Jazeera, ship-to-ship transfers have significantly increased, and TankerTrackers believe that more than 7 million barrels per day are transferred in such transfers over 14 days.

In addition, there is an issue of safety. The ship-to-ship transfers may lead to a rise in the collision risk and the probability of oil spills, especially in cases when there is a lack of transparency in the work of the vessel. There is an issue with insurance, since war-risk, cargo protection, and pollution need to be considered.

For global oil buyers, the bigger concern is what happens if another part of this improvised network is disrupted.

According to Al Jazeera, the high price of oil is also attributable to the increased cost incurred in transporting and insuring it. Further, the CEO of Saudi Aramco, Amin Nasser, has stated that it could take up to two years to replenish the depleted stocks of oil in the world in the event of an improvement in the situation surrounding Hormuz.

There is, thus, much more fragility behind the present flow of oil.

Oil is getting to the consumers, albeit with increased difficulty and expense. That is to say that until there is stability in the process of transporting oil through the Strait of Hormuz, the world oil industry will continue to be sustained through an intricate process of workarounds rather than the resumption of normalcy.