Ship-to-Ship Transfers Keep Middle East Oil Exports Flowing

The Middle East oil market has found an innovative way to keep exports flowing despite the ongoing conflict in the region, but at a high cost. Producers are using ship-to-ship (STS) transfers to transport crude from Gulf terminals to safer waters, where it can be transferred to larger ships for onward journey to refineries in Asia.

The STS system involves rows of tankers lying at anchor off Oman's coast, connected by ropes and hoses to transfer crude between vessels. This process cuts the distance any one ship must travel, reducing the risk of transiting the Strait of Hormuz. Exports through Hormuz have reached around 6.5 million barrels per day (bpd) so far this month, the highest since the brief spike after the June ceasefire.

Before the conflict, the Strait of Hormuz handled roughly a fifth of global oil consumption. The Iran blockade brought traffic to an abrupt halt, forcing producers to divert flows where possible and cut output. Many shipowners balked at sending vessels through the active conflict zone, and those willing to take the risk demanded unprecedented premiums.

Abu Dhabi National Oil Company (Adnoc) developed the STS workaround in April, employing tankers as shuttle vessels to transport crude from Gulf terminals to the safer waters of the Gulf of Oman. The strategy maximised the use of a limited and expensive tanker fleet and allowed some vital exports to continue.

UAE oil exports this month are set to reach 3.6 million bpd, higher than last year's average of 3.4 million bpd. Saudi Aramco is also relying increasingly on STS operations as disruptions to Red Sea export routes reduce the effectiveness of the kingdom's alternative outlet.

Freight now represents over a quarter of the cost of crude oil, compared with two to three per cent before the war. Keshav Lokhiya, CEO of HiLo Analytics, noted that 'we are witnessing one of the biggest wealth transfers from oil producers to tanker owners.'