Gulf Oil Exports Recover but Hormuz Flows Remain Disrupted

Gulf oil exports have largely recovered to pre-war levels, reaching approximately 16.5 million barrels per day (bpd) in September. However, only 60% of these barrels now pass through the Strait of Hormuz, down from 83% before the conflict. Exporters have adapted by using alternative routes, such as pipelines and ship-to-ship (STS) transfers, but these methods are more costly and inefficient. Elevated freight and security costs have become the norm, with STS capacity already stretched thin and vessel utilization remaining inefficient.

Saudi Arabia exemplifies both the success and limitations of these adaptations. After damage to the East-West pipeline in early September, exports shifted to the east coast, rebounding to about 6.9 million bpd in September from 2.45 million bpd in August. While the restart of the East-West pipeline has restored another route, pipeline throughput remains below full capacity and vulnerable to further attacks. Discounts of up to $9 per barrel on cargoes loaded offshore Oman reflect the added logistical costs.

The recovery in oil flows has reduced the likelihood of extreme shortages, which should gradually ease some of the scarcity premium in oil prices. However, the higher costs and longer voyage times mean the system has less spare capacity to handle another major disruption. Standard Chartered notes that while exporters have shown resilience, the situation does not justify a return to pre-war risk premiums.

Iran’s seaborne crude exports have plummeted to near zero in September, down from around 1.7 million bpd before the war, due to a U.S. naval blockade. This has weakened Iran’s ability to disrupt regional oil exports through the Strait of Hormuz but has also heightened the risk of military escalation. Iran remains defiant, insisting the strait will stay closed until the U.S. meets its conditions. Foreign Minister Abbas Araghchi suggested the strait could reopen within seven days if Washington accepts Iran’s terms.