Within 24 hours of the U.S. and Israel going to war with Iran, Tehranย responded with a wave of attacks on commercial ships in the Strait of Hormuz to cut off one of the world’s main sources of crude oil.ย
Iran’s campaign was initially successful, with crude exports plunging nearly 90% to 1.8 million barrels a day in March compared with 16 million bpd in February, according to data provided by Kpler.
But crude flows have rebounded over the past eight months as the U.S. military provides protection to tankers transiting Hormuz. Tehran has responded by escalating its attacks in recent weeks.
More commercial ships have come under attack in October than at any other point in the war. Yet in contrast to March when exports cratered, tankers have continued to ferry substantial volumes of crude oil through Hormuz in a sign that the shipping industry has adapted to wartime in the Persian Gulf.
As of Oct. 27, at least 30 vessels, mostly oil tankers, were hit this month leaving at minimum 16 seafarers injured, according to data from the International Maritime Organization, a United Nations agency. Ship attacks doubled in October compared with 15 confirmed incidents in September.
“It’s a difficult situation. Ships are attacked really on a daily basis,” said Jakob Larsen, chief safety and security officer at Denmark-headquartered BIMCO, one of the big international shipping trade associations.
Ship attacks in the Strait of Hormuz surged in October
Kpler
Oil prices rise, but flows are resilient
Crude prices have surged more than 13% this month as security conditions have deteriorated in the Persian Gulf. The international Brent contract traded above $117 a barrel on Friday. That’s just shy of its wartime closing high of $118.35 during Iran’s big wave of ship attacks in March.
Yet actual crude exports through Hormuz stood at nearly 11.1 million bpd on average in October, only about 2% lower from September despite the sharp escalation of violence, Kpler’s data shows.
“On balance in terms of oil coming out, there hasn’t been a massive impact,” said Mary Melton, senior tanker analyst at Braemar, a ship broker headquartered in London.
Crude flows through Hormuz are highly volatile on a daily basis with exports near prewar levels one day while falling well below such levels another day. The final leg of October has seen flows decline to 7.3 million bpd for the week ended Wednesday, more than 40% below the prewar baseline, according to Kpler.
Oil flows are more resilient now because the shipping industry has adjusted its operations to the threats, Larsen said. Freight rates have soared, making it “more attractive for the risk takers in the industry to actually carry out these voyages,” he said.
“And when the cost of oil goes up that also means that there’s more commercial incentives to get the oil out and sell it in 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, sail through Hormuz with their transponders turned off and transfer the cargo to tankers waiting in the Gulf of Oman that then deliver it to refiners in Asia. This reduces insurance costs for the ships waiting outside the strait, Melton said.
The shuttle system has been effective at getting oil out with flows through Hormuz surging more than 70% since July, according to Kpler. But this system is also inefficient, logistically complicated and expensive, Melton said.
It requires more equipment, ships and experienced crews, the analyst said. About 20% of the world’s supertanker fleet is tied up helping to shuttle oil out of the Gulf, she said.
Tanker rates have exploded as a consequence. It cost $249,000 per day to hire 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 surged to more than $900,000 per day. This translates to about $21 in transportation costs per barrel of crude oil compared with $6.50 a barrel in September, the analyst said.
“If you’re an importer in Asia, you’re used to paying almost nothing for freight,” Melton said. “Then you’re facing 20% to 30% of the actual delivered cost of crude is going to freight.
“That really starts impacting your margins as a refiner,” the analyst said.
More Gulf oil producers are now covering the cost and risk of shipping through Hormuz in a bid to claw back market share in Asia from the U.S. and other Atlantic producers, she said. And they are increasingly using their own tankers to run the gauntlet through the strait, she said.
Uncertainty as midterms approach
It is unclear how long the complex and expensive shuttle system can sustain current export levels. The tankers transiting Hormuz are totally dependent on air support from the U.S. military for their security, Larsen said.
“I don’t think there would be many shipowners willing to take the risk if they didn’t have that air cover from U.S. fighter jets and helicopters and drones,” he said.
It is also uncertain how long the U.S. military will remain engaged, particularly if Democrats regain control of Congress after Tuesday’s elections and demand that the president end the war.
The U.S. has told several Gulf Arab nations to be ready for a short but intense military campaign following the Nov. 3 midterm elections, people briefed on the conversations told The Wall Street Journal. The U.S. Navy, which is enforcing a blockade against Iran, has warned ships that don’t need to transit the Persian Gulf, Hormuz and Gulf of Oman to steer clear of the region.
“Due to the current geopolitical situation, vessels which do not need to transit the area are advised to remain well clear to avoid unnecessary delays to their voyage,” the U.S. military told vessels Wednesday through a notice issued by the Joint Maritime Information Center.
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