Gulf Nations Find Workarounds to Keep Oil Flowing Despite Iran Shutdown

The Iran war has caused significant disruptions to oil supplies, but Gulf nations have found ways to keep oil flowing through alternative routes and pipeline capacity. In response to Iran's shutdown of the Strait of Hormuz, Saudi Arabia and other Gulf producers quickly switched to unused pipelines, such as the East-West pipeline that carries oil to the Red Sea port of Yanbu.

However, when Iranian-backed Houthi rebels in Yemen disrupted this route by declaring a blockade of Saudi oil shipments, the Saudis redirected Asia shipments northwest to the Mediterranean through the Suez Canal or a pipeline across Egypt. This detour around Africa added significant time and cost to the voyage.

The workarounds have been costly and may not be sustainable in the long term. The demand for supertankers has driven up charter rates, with spot charter rates reaching $1 million per day on September 11. Analysts estimate that some 6-7 million barrels of oil per day are now flowing through the southern route, with a further 2 million barrels passing through the pipeline to Fujairah.

Despite these efforts, Iran still has leverage and could disrupt the US-guided corridor in the Strait of Hormuz. The workarounds have kept the economy supplied for now, but the long-term consequences are uncertain. Analysts at Rystad Energy foresee oil prices falling to $85-90 per barrel by the end of the year if the Strait of Hormuz is reopened.