Hormuz Oil Trade Shifts to Ship-to-Ship Transfers Amid Regional Conflict

The Strait of Hormuz oil trade has seen a new system emerge in response to regional conflicts, allowing producers to keep exports flowing despite escalating tensions. The system involves ship-to-ship transfers between tankers off Oman's coast, reducing the risk of transiting the strait and enabling the movement of around 6.5 million barrels per day (bpd) of crude oil through Hormuz in September.

This workaround was developed by Abu Dhabi National Oil Company (ADNOC) in April to maximize the use of a limited tanker fleet. The system has since been adopted by other regional producers, including Saudi Aramco, which is relying on STS operations due to disruptions to Red Sea export routes.

The emergence of this floating logistics network has helped prevent a severe supply shock but comes at a steep price. Benchmark freight rates for VLCCs have surged to above $30 per barrel, representing over a quarter of the cost of crude oil, and producers are offering deeper discounts on their crude to keep exports competitive.