Oil Flows Through Iran War Workarounds, but Costs Mount

The ongoing Iran war has raised concerns about oil supply disruptions, but surprisingly, nearly seven months on, oil prices are not skyrocketing. The Strait of Hormuz, a critical oil shipping route, was shut down at the start of the war, affecting some 15 million barrels of oil per day. However, Saudi Arabia and other Gulf producers quickly found alternative routes, including pipelines and unused capacity.

The US military and oil exporters have been working together to keep energy flowing through a series of workarounds. For instance, when Iran attacked ships in the Strait of Hormuz, the Saudis turned to their East-West pipeline that carries oil to the Red Sea port of Yanbu. From there, tankers headed out through the Bab el-Mandeb Strait toward Asia.

Analysts estimate that some 6 million barrels of oil per day or more have been passing through the Strait of Hormuz on the US-guided corridor in the past few months, which is about 40% or more of prewar flows. The workarounds have helped keep prices in check, but they are expensive and may not be sustainable.