Rebounding oil exports through Strait of Hormuz are vulnerable to stepped-up Iranian tanker attacks

Tensions are escalating as Iran intensifies attacks on tankers navigating through the Strait of Hormuz, jeopardizing the recent surge in crude oil exports from the Persian Gulf. Over the past month, nearly two dozen commercial vessels, primarily tankers, have faced assaults en route through the strait, Hormuz or the Arabian Gulf, according to the Joint Maritime Information Center—a coalition of U.S.-allied armed forces providing maritime security updates to shipping companies.

Iran targeted approximately two vessels for every 100 that traversed the strait during the third quarter, per Michelle Wiese Bockmann, a senior maritime intelligence analyst at Windward, a firm specializing in ship tracking for defense departments and governments. The security of oil flows through Hormuz hinges on a substantial U.S. military presence committed to safeguarding tankers sailing along the southern coast of Oman.

However, the sustainability of this rebound in crude exports is uncertain without a negotiated resolution or capitulation from Tehran. Many tankers utilize a shuttle system, transferring oil onto vessels in the Gulf of Oman after crossing Hormuz, thereby mitigating attack risks but necessitating additional ships to transport the petroleum to Asian markets.

"No one in Washington believes this approach is financially sustainable," noted Bob McNally, president of Rapidan Energy and a former energy advisor to George W. Bush, highlighting the inefficiency of ship-to-ship transfers and the elevated tanker rates. Crude oil shipments through Hormuz have shown daily fluctuations, occasionally matching or surpassing pre-Iranian war levels, according to Kpler data, which tracks tanker movements and global trade.

Nonetheless, exports have occasionally fallen below pre-conflict volumes. Averages for the week ending Saturday stood at about 10.3 million barrels per day, around 23% lower than the prewar benchmark of 13.5 million barrels per day. Windward estimates crude exports through Hormuz at 9-10 million barrels per day, compared to a prewar baseline of 14.5 million barrels per day.

While fluctuating, crude flows have surged since the U.S. military successfully secured the shipping route along Oman’s coast, according to analysts. Yet, shippers endure substantial costs due to the heightened maritime risks and crew dangers. Since July, at least nine sailors have perished, 18 have been injured, and three remain missing, according to the International Maritime Organization, a UN agency.

"Volumes are flowing through, but only amid an extreme maritime risk," Bockmann remarked. The increasing security concerns have driven shipping costs for crude from the Persian Gulf to China to $1 million daily per tanker. "Oil flows have rebounded due to the market’s acceptance of enhanced operational complexity and higher expenses," stated Richard Meade, editor-in-chief of Lloyd’s List, a London-based maritime industry trade publication.

However, the threat to tankers persists, according to Meade. Brent oil prices, the global benchmark, remain near $100 per barrel, despite the surge in crude through Hormuz. "If the market perceived this situation as sustainable, we would observe significantly lower prices," McNally from Rapidan Energy commented. Prices remain elevated because shipping crude remains costly in terms of delivery, insurance, and final delivery, particularly in consuming regions where benchmark prices govern.

Although more oil is exiting Hormuz, the area remains insecure, according to McNally. Iran's Revolutionary Guard recently boarded a tanker navigating the strait and demanded its departure or faced repercussions, as reported by the United Kingdom Maritime Trade Operations Centre. The vessel complied with the order. "The oil market is not becoming more secure; it is becoming more efficient at operating under persistent insecurity," Meade concluded.