Crude oil exports from the Strait of Hormuz have returned to normal pre-war levels in Iran as U.S. military escorts increased shipments and pipelines redirected flows.
Crude transiting Hormuz reached a seven-day average of 13.5 million barrels per day on Monday, matching a pre-war benchmark for shipments through the strait, according to data released Wednesday by Kpler, a company that tracks global tankers and trade flows.
Iran claimed throughout the war that it controlled Hormuz and repeatedly declared the strait closed. But Tehran is losing influence as large volumes pass through Hormuz, said Matt Smith, director of commodities research at Kpler.
Crude oil shipments from the Middle East region, including the Persian Gulf and the Red Sea, are at times above pre-war levels. The region hit a seven-day average of 19.5 million bpd on Monday, surpassing the pre-war baseline of about 17 million bpd, according to Kpler data.
But the recovery is uneven, said Natasha Kaneva, head of global commodities strategy at JPMorgan. The “crude market has largely normalized even if the supply of refined products remains limited,” Kaneva said.
The world faces a global fuel crisis as supplies from the Middle East are limited and Ukraine strains Russian refineries. Refined products shipped through Hormuz reached a seven-day average of 677,000 b/d on Monday, up from 3.6 million b/d before the war, according to Kpler.
Crude and product shipments together amounted to a seven-day average of 14.2 million b/d, about 80% of Hormuz’s pre-war baseline of around 17 million b/d, the data showed.
The global fuel supply deficit has pushed U.S. diesel prices to record highs, posing a major threat to the health of the economy. President Donald Trump is considering an export ban as he faces political pressure from Republican lawmakers ahead of the midterm elections.
“The biggest source of pain is the diesel market,” Francisco Blanch, global head of commodities at Bank of America, told CNBC’s “Squawk on the Street” on September 8.
Iran exports its crater
Meanwhile, Iranian crude oil exports have fallen as the U.S. Navy blockades the Islamic Republic, according to Kpler data. President Donald Trump is trying to force Tehran into a deal by cutting off its main source of income. The United States has also intensified its sanctions campaign.
Treasury Secretary Scott Bessent told Fox News on Sunday that Iran will make its final crude deliveries to China in about two weeks, leaving them with “nothing left to trade for anything.”
“There are some in Washington who are saying, let’s let the blockade do its job – we can wait out Iran,” Helima Croft, head of global commodities strategy at RBC Capital Markets, said on CNBC’s “Power Lunch” on September 25.
But there is no hard evidence that U.S. economic pressure will fundamentally change Iran’s position, Scott Modell, CEO of Rapidan Energy and a former CIA officer, told CNBC’s “Squawk on The Street” on Monday.
Iran offered last week to reopen Hormuz in seven days if the United States returned to the failed June memorandum of understanding. The United States made significant concessions under the memorandum of understanding, agreeing to lift its blockade and allow Iran to negotiate with Oman a future system of administration for Hormuz.
The memorandum of understanding collapsed over the summer and led to renewed fighting. Trump rejected Iran’s latest offer and told aides he plans to resume bombing Iran after the midterm elections, unnamed U.S. officials told the Wall Street Journal.
How the Gulf adapted
Even though export levels are at or near pre-war levels, security conditions across the Strait are far from normal. Iran continues to fire on tankers in sometimes deadly attacks.
In response, more than 70% of the crude oil that passed through Hormuz in August was transferred by tankers off the coast of the United Arab Emirates or Oman, according to Kpler. Shuttle tankers transport oil via Hormuz to the Gulf of Oman. The cargo is then loaded onto another tanker which delivers it to Asia.
This shuttle system is protected by the US military and reduces the risk of exposure to an Iranian attack. But it is not clear how long this system can last given that it depends on American military protection.
“It’s very expensive and represents a huge U.S. military commitment,” Croft said.
And Gulf states do not view “disparate arrangements” of ship-to-ship transfers and military escorts as an acceptable substitute for the opening of Hormuz, she said.
Pipelines operated by Saudi Arabia and the United Arab Emirates also do the heavy lifting. About 40% of Gulf crude oil now bypasses Hormuz via these pipelines, compared to 17% before the war, according to Kpler.
But pipelines are also vulnerable to attacks. The Saudis shut down their East-West pipeline earlier this month after it was damaged in a drone strike launched from Iraq. Loadings have resumed at the Saudi port of Yanbu on the Red Sea, a sign that the pipeline is back in service.
Crude flows remained resilient during the pipeline outage because Riyadh was able to redirect its exports to Hormuz thanks to the shuttle system protected by the US military.
But the region’s oil supplies could be disrupted again as the diplomatic standoff increases the risk of renewed fighting.
“I think the president is going to step up after the midterm elections, we keep hearing that the Iranians are going to step up in the midterm elections,” Rapidan’s Modell said. “The direction of travel is toward escalation.”
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