Middle East Oil Market Adapts to Conflict Through Expensive Ship-to-Ship Transfers
The Middle East oil market is experiencing a complex and expensive transformation due to the escalating regional conflict. A new shuttling system, known as ship-to-ship (STS) transfers, has emerged as a vital lifeline for Gulf producers. This method involves transferring crude from one tanker to another while anchored off Oman's coast, south of the Strait of Hormuz.
The STS operation cuts the distance any one ship must travel, reducing the risk of transiting the strait. Despite this challenge, exports through Hormuz have reached around 6.5 million barrels per day (bpd) so far in September, the highest since the brief spike after the June ceasefire.
The energy industry's ability to adapt to supply shocks is remarkable, but it comes at a steep price. Benchmark freight rates for a very large crude carrier (VLCC) transporting Gulf crude to China have surged in recent months to above $30 per barrel, by far the highest level on record.