Less than 24 hours after the United States and Israel entered war with Iran, Tehran responded with a wave of attacks on commercial shipping in the Strait of Hormuz to cut off one of the world’s main sources of crude oil.
Iran’s campaign was initially successful, with crude exports falling by almost 90%, to 1.8 million barrels per day in March, from 16 million bpd in February, according to data provided by Kpler.
But crude flows have rebounded over the past eight months, with the US military providing protection for tankers transiting Hormuz. Tehran has responded by intensifying its attacks in recent weeks.
More commercial ships were attacked in October than at any other time in the war. Yet unlike March, when exports fell, tankers continued to transport large volumes of crude oil through Hormuz, a sign that the shipping industry has adapted to the war in the Persian Gulf.
As of Oct. 27, at least 30 ships, mostly oil tankers, have been hit this month, leaving at least 16 sailors injured, according to data from the International Maritime Organization, a United Nations agency. Attacks on ships doubled in October, compared to 15 confirmed incidents in September.
“It’s a difficult situation. Ships are attacked daily,” said Jakob Larsen, head of safety and security at Denmark-headquartered BIMCO, one of the major international shipping trade associations.
Attacks on ships in the Strait of Hormuz increased in October
Kpler
Oil prices rise, but flows resist
Crude prices have surged more than 13% this month due to deteriorating security conditions in the Persian Gulf. The international Brent contract was trading above $117 per barrel on Friday. That’s just below its wartime closing high of $118.35, during the great wave of Iranian naval attacks in March.
Yet actual crude exports through Hormuz averaged nearly 11.1 million bpd in October, only about 2% lower than in September despite the sharp escalation in violence, according to Kpler data.
“Overall, in terms of oil production, there hasn’t been a massive impact,” said Mary Melton, senior tanker analyst at Braemar, a shipbroker headquartered in London.
Crude flows through Hormuz are highly volatile on a daily basis, with exports near pre-war levels one day and falling well below those levels the next. The final leg of October saw flows decline to 7.3 million bpd for the week ended Wednesday, more than 40% below the pre-war baseline, according to Kpler.
Oil flows are now more resilient because the shipping industry has adjusted its operations to threats, Larsen said. Freight rates have climbed, making it “more attractive for risk-takers in the industry to make these trips,” he said.
“And when the cost of oil increases, that also means there are more commercial incentives to extract the oil and sell it on the global market,” Larsen said.
Adapting to more perilous times
Shippers have adapted by setting up a shuttle system to reduce the risk of attack. Tankers load crude at Persian Gulf ports, pass through Hormuz with their transponders turned off and transfer the cargo to waiting tankers in the Gulf of Oman who then deliver it to refiners in Asia. This reduces insurance costs for ships waiting outside the strait, Melton said.
The shuttle system has been effective in moving oil, with flows through Hormuz increasing by more than 70% since July, according to Kpler. But that system is also inefficient, logistically complicated and expensive, Melton said.
This requires more equipment, ships and experienced crews, the analyst said. About 20% of the world’s supertanker fleet is dedicated to transporting oil out of the Gulf, she said.
As a result, tanker rates have skyrocketed. It costs $249,000 a day to charter a supertanker to make the journey from the Gulf of Oman to Asia in early September, Melton said. By the first week of October, the price had climbed to more than $900,000 per day. That’s about $21 in transportation costs per barrel of crude oil, up from $6.50 per barrel in September, the analyst said.
“If you’re an importer in Asia, you’re used to paying almost nothing for freight,” Melton said. “In this case, 20-30% of the actual cost of delivered crude goes to freight.
“It’s really starting to impact your margins as a refiner,” the analyst said.
More Gulf oil producers are now hedging the cost and risk of transportation through Hormuz in a bid to regain market share in Asia from the United States and other Atlantic producers, she said. And they are increasingly using their own tankers to cross the strait, she said.
Uncertainty ahead of midterm elections
It is unclear how long the complex and expensive shuttle system will be able to maintain current export levels. Tankers transiting Hormuz are completely dependent on U.S. military air support for their safety, Larsen said.
“I don’t think many shipowners would be willing to take risks if they didn’t have this air cover provided by American fighter jets, helicopters and drones,” he said.
It’s also unclear how long the U.S. military will remain engaged, particularly if Democrats regain control of Congress after Tuesday’s election and demand that the president end the war.
The United States has asked several Gulf Arab countries to prepare for a short but intense military campaign after the Nov. 3 midterm elections, people briefed on the conversations told The Wall Street Journal. The US Navy, which imposes a blockade against Iran, has warned ships that do not need to transit the Persian Gulf, Hormuz and the Gulf of Oman to avoid that region.
“Due to the current geopolitical situation, vessels that do not need to transit the area are advised to stay away to avoid unnecessary delays in their journey,” the U.S. military told ships in an advisory issued by the Joint Maritime Information Center on Wednesday.
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