Oil exports from the Persian Gulf have climbed back above pre-war levels, but steep transportation costs and ongoing attacks are leaving the market doubtful about whether this situation can last.
According to ship-tracking firm Kpler, average daily Middle East oil flows — including the Strait of Hormuz and alternative regional routes — surpassed 24 million barrels in the week ending October 18, above the pre-war figure of 23.3 million barrels.
At the same time, Brent crude was quoted at roughly US$108 per barrel this Tuesday, continuing to trade at elevated levels recently. Natasha Kaneva, head of the global commodities strategy team at JPMorgan, put it bluntly: "What was in short supply in April was crude oil; in October, it is shipping costs."
Attacks escalate, shipping costs near record highs
According to tallies from the UK Maritime Trade Operations center and reports by several maritime security firms, about 30 ship attacks have occurred this month. Michelle Wiese Bockmann, a senior analyst at maritime intelligence firm Windward, noted that October's attacks account for 20% of all vessels struck during the entire war.
Kpler data shows that this week the freight cost for supertankers carrying oil from the Gulf to a major Asian country is close to a record high of US$37.37 per barrel. According to Windward's Wiese Bockmann, war-risk insurance premiums have climbed from less than 3% of a vessel's value to as much as 10%.
The ordeal of the Tanzania-flagged supertanker "Loyalty" is a microcosm of this high-stakes gamble. The vessel entered the Persian Gulf twice starting in September to load Iraqi crude, and crew members said the company issued body armor and helmets for the second voyage. On October 16, while carrying 2 million barrels of Iraqi crude, the "Loyalty" was hit by a rocket-propelled grenade fired from a small boat, with the warhead blasting a hole in a freshwater tank.
Christopher Long, a former British naval officer at Neptune P2P Group, said: "Iran is attempting to re-blockade the Strait of Hormuz."
Export volumes recover, but Hormuz has yet to fully normalize
Preliminary Kpler data shows that average daily oil flows through the Strait of Hormuz — including ship-to-ship transfers in the Gulf of Oman — were about 14 million barrels over the same period, equivalent to 82% of pre-war levels.
Cross-border pipelines in Saudi Arabia and the United Arab Emirates are helping to share part of the burden. Kpler estimates that in September, about 40% of non-Iranian crude exported from the Gulf region bypassed the Strait of Hormuz, compared with just 17% before the war.
Hamad Hussain, a senior commodities economist at Capital Economics, said: "Overall, the system for shipping through the dangerous Strait of Hormuz has become quite mature, and the willingness of all parties involved in oil exports to bear risk has also risen somewhat."
Huge profits drive shipowners and crews to take the risk
Behind the high risk lies high reward.
Homayoun Falakshahi, head of crude oil analysis at Kpler, estimates that compared with before the war, traders can earn about US$20 more per barrel by reselling Iraqi oil, and a single cargo on a supertanker can yield roughly US$40 million. Three such voyages would be enough to recover the roughly US$100 million purchase cost of a secondhand tanker.
"Despite escalating attacks, shipments remain high because the profits make the risk worthwhile," Falakshahi said.
Crew members are also receiving generous compensation. According to a previous report by The Wall Street Journal, crew members have been lured aboard with bonuses equivalent to two to three times their normal monthly salary; a crew-placement company headquartered in Asia has offered as much as US$25,000 for a round trip that typically lasts one to two weeks.
Shipbrokers say some shipowners are redeploying older vessels that previously ran routes to Venezuela and Russia to the Persian Gulf to capture the region's unusually high freight rates.
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