Oil Prices Remain Stable Despite Iran War Blockages

The Iran war has been ongoing for nearly seven months, but surprisingly, oil prices have not skyrocketed as many feared. In fact, they've only risen to around $100 a barrel.

This is because Saudi Arabia and other Gulf producers quickly found alternative routes and pipeline capacity when Iran shut down the Strait of Hormuz at the start of the war. When these were targeted, the oil exporters and the U.S. military found still other ways to work around the blockages in an often clandestine game of whack-a-mole.

Rahul Choudhary, vice president of upstream research at energy data firm Rystad Energy, estimates that 6 million barrels per day or more have been passing through the Strait of Hormuz on the dark shuttle route, which is around 40% or more of prewar flows. This, combined with oil being drawn down from global inventories and reduced demand due to higher prices, has kept the market balanced.

However, these workarounds are expensive and may not be sustainable in the long term. The costs include sending oil to Asia through the Suez Canal instead of the Red Sea, which can add a month to the voyage, and using expensive tankers waiting at least a day and a half for ship-to-ship transfers.