Gulf oil exports recover, but why is the world still facing a $100 crude shock?

Gulf oil exports are on the rise following months of disruption caused by the US-Israeli conflict with Iran, though they remain far below pre-war levels. In September, Middle Eastern oil producers anticipate reaching 12.8 million barrels per day, the highest figure since the war commenced in February. Saudi Arabia and the United Arab Emirates have largely contributed to this surge.

However, the recovery is not yet complete, as exports are still approximately 6 million barrels per day below the 18.8 million bpd shipped in February prior to the war. With Brent crude prices hovering above $100 a barrel, Asian oil importers, including India, are keenly monitoring the Strait of Hormuz and the stalled US-Iran negotiations.

Saudi Arabia spearheads the recovery, with the Middle East's principal oil exporter expected to ship around 5.4 million bpd in September, more than double the 2.446 million bpd shipped in August. Saudi Arabia's port throughput at Ras Tanura, the country's principal Gulf terminal, has also surged and is forecasted to reach around 3.6 million bpd this month, compared to just 929,000 bpd in August.

Despite this progress, the Strait of Hormuz exports are projected to hit around 7.4 million bpd this month. Saudi Arabia has been leveraging the strait more following the damage to its East-West pipeline, which had been transporting crude to the Red Sea port of Yanbu. Kpler recorded 19 very large crude carriers, or VLCCs, leaving the strait last week, each capable of carrying approximately 2 million barrels of Saudi crude.

This surge in exports is partly due to the storage of unshipped oil, which can be dispatched quickly once shipping routes are restored. While production has not yet rebounded, exports can rebound within weeks, while restoring oil wells, pipelines, and confidence in shipping routes will take longer. The oil crisis unfolded when the war began on February 28, causing the Strait of Hormuz to handle about 125 large commercial vessels daily, which carried around 20% of the global daily crude oil and liquefied natural gas supply.

Since then, OPEC's production has plummeted, and the United Arab Emirates withdrew from the organization after almost 60 years. The International Energy Agency projects a 4.3 million bpd decrease in global oil supply in 2026, reaching around 102 million bpd. The US-Iran talks, which could lead to a phased agreement, remain a significant factor.

However, no agreement has been reached yet, and oil prices have surged from August levels, averaging $91 a barrel in August. OPEC+ has limited capacity to respond to the crisis, as the war impedes some planned oil output from reaching customers. For India, the crisis has led to a 60% increase in crude oil import costs and a 41% rise in the crude import bill in July.

Higher oil import bills could widen India's trade and current account deficits and put pressure on the rupee. Shipping costs have also risen, with war-risk insurance for vessels passing through Hormuz increasing from $250,000 before the war to up to $10 million. Indian refiners are experiencing higher costs, paying around $10 a barrel above Brent.