Oil Flows Through Alternative Routes Despite Iran War

Despite the ongoing war between Iran and its Gulf neighbors, oil has continued to flow through alternative routes, keeping prices relatively stable at around $100 a barrel. This has come as a surprise to many analysts, who had initially feared that the conflict would lead to skyrocketing prices.

The initial disruption occurred when Iran shut down the Strait of Hormuz in May, cutting off 15 million barrels of oil per day. However, Saudi Arabia and other Gulf producers quickly found alternative routes, including using their East-West pipeline and pipeline capacity through neighboring Oman.

When Iranian-backed Houthi rebels disrupted the Yanbu workaround by declaring a blockade on Saudi oil shipments, the Saudis redirected Asia shipments northwest to the Mediterranean, either through the Suez Canal or a pipeline across Egypt. This detour added an extra month to the voyage but kept energy flowing.

The U.S.-supervised dark shuttle route in the Strait of Hormuz has also played a crucial role in maintaining oil supplies. According to Adm. Brad Cooper, head of U.S. Central Command, U.S. forces have assisted 2,000 commercial ship transits and transported over 1 billion barrels of oil from Gulf partner nations over 'the past couple of months.'

Analysts estimate that some 6 million barrels per day or more have been passing through the Strait of Hormuz on the dark shuttle route, equivalent to 40% or more of pre-war flows. This has helped keep prices in check, but experts warn that the workarounds are expensive and may not be sustainable.

Rahul Choudhary, vice president of upstream research at energy data firm Rystad Energy, estimates that the market is 'very tightly balanced' and expects oil to remain at $100 a barrel for now. However, he notes that the workarounds are costly and that markets are braced for further disruption.

The attack on the East-West pipeline has shown that pipelines can be vulnerable to disruptions. Iran could try to disrupt the U.S.-protected dark shuttle route or target areas near the Omani coast where ship-to-ship transfers take place, potentially leading to even higher prices and more significant economic consequences.