Iranian Blockade Broken: Oil Exports Through Hormuz Exceed Pre-War Levels

Oil exports from the Middle East have surpassed pre-war averages for the first time, according to research firm Kpler. In the seven days leading up to October 1, daily exports through the Strait of Hormuz averaged 18.5 million barrels, compared to a yearly average of 18 million barrels in the year before the war began on February 28. This increase occurred despite ongoing Iranian attacks on oil tankers transiting the strait.

The surge in exports is attributed to a dramatic rise in the price of passage through Hormuz, incentivizing shipping companies to accept the risks involved. In late September, daily exports sometimes reached between 19.5 and 22 million barrels, exceeding pre-war levels. The Strait of Hormuz, a narrow waterway between Iran and Oman, is crucial for transporting oil from the Persian Gulf to global markets, particularly in Asia.

Following the war's outbreak, Iran attempted to economically strangle its Arab rivals by restricting maritime traffic through the strait. While the U.S. destroyed a significant portion of the Iranian navy, Iran continued to target ships with missiles and drones, a tactic also employed by the Houthis in the Bab el-Mandeb strait. The risk of attack had previously deterred many merchant vessels.

However, recent developments have shifted the dynamic. On September 1, the U.S. launched an operation targeting Iran's detection, surveillance, and firing capabilities to mitigate risks. More significantly, economic incentives have become a major driver. Over the past two months, oil exporters have tripled the price offered for passage through Hormuz, exceeding $1.2 million per sailing day, a stark contrast to the tens of thousands of dollars charged before the war.

This high price has made the risk more palatable for some companies, such as South Korea's Sinokor. The company has employed a "ship-to-ship transfer" strategy, loading oil within the Gulf, sailing out of Hormuz with navigation systems off, and then transferring the crude to tankers in the Gulf of Oman. Despite a Sinokor vessel being hit by Iranian fire on August 30, U.S. actions on September 1 enabled Sinokor and other tankers to resume passage with increasing frequency.

Professor Joshua Krasna explained the ship-to-ship transfer method, where vessels load within the Gulf, exit Hormuz with navigation systems off, and then connect with tankers in the Gulf of Oman. While the high prices compensate for the elevated risks, they do not eliminate them. Several ships have been damaged in the strait, likely by Iranian fire, and 25 sailors have died during the conflict. Shipping companies are offering substantial bonuses to sailors from developing countries to undertake these dangerous voyages, ensuring oil continues to flow. However, the increased costs associated with these measures have kept oil prices high, with Middle Eastern Murban crude still commanding a premium of approximately $9 over the standard Brent crude price.