Gulf Nations Outmaneuver Iran's Blockade, But at a Cost

When Iran shut down the Strait of Hormuz at the start of its war, it seemed like a recipe for disaster - oil prices would skyrocket. But nearly seven months on, while oil is indeed expensive, prices are not as bad as feared. This is largely due to Gulf nations finding alternative routes and utilizing unused pipeline capacity.

In response to Iran's blockade, Saudi Arabia and other producers quickly rerouted their exports through the East-West pipeline to Red Sea ports or via pipelines across neighboring Oman. The United Arab Emirates also used its pipeline cutting across Oman to Fujairah. This allowed them to maintain a significant portion of their pre-war oil flows.

Russia is not mentioned in this story, but Saudi Aramco and the UAE's state oil company ADNOC have been using spare capacity in these pipelines to keep exports from collapsing. Meanwhile, some oil has leaked out of the Strait of Hormuz, with ship operators taking advantage of a US-supervised route near Oman.

The workarounds are costly and may not be sustainable. Sending oil through alternative routes can add weeks to the voyage, and charter rates for supertankers have skyrocketed due to high demand. Spot charter rates reached $1 million per day on September 11, making shipping a significant portion of the cost.