Gulf nations keep oil flowing despite Iran war as costs mount
When Iran shut down the Strait of Hormuz at the start of the war, choking off sea passage for some 15 million barrels of oil a day, many feared that prices would skyrocket, cratering the world economy.
Instead, nearly seven months on, oil is expensive but not exorbitant, and analysts say the supply is pretty much sufficient to meet current global needs, even as the higher prices cause political problems for U.S. President Donald Trump and others.
That’s because Saudi Arabia and other Gulf producers quickly found alternative routes and reached for unused pipeline capacity. When Iran and its militant allies targeted those, the oil exporters and the U.S. military found others — workarounds for the workarounds — in an often clandestine game of whack-a-mole.
With oil now at around $100 a barrel — higher than before the war but not as bad as feared — Iran has diminished leverage, while a U.S. naval blockade and tightened sanctions smother its own economy.
But the workarounds are expensive and may not be sustainable. The drawing down of existing commercial oil stocks — especially by China — has also helped keep prices in check, but cannot continue indefinitely. And Iran could yet gain an edge with continued attacks on key oil facilities.
Iran began attacking ships in the Strait of Hormuz in response to the U.S.-Israeli bombardment that started the war. In response, the Saudis turned to their East-West pipeline that carries oil to their Red Sea port of Yanbu.
From there, tankers headed out through the Bab el-Mandeb Strait toward Asia. Likewise, the United Arab Emirates used its pipeline cutting across neighboring Oman to Fujairah — a route that skirts the strait.
Both pipelines had spare capacity, and the UAE’s state oil company ADNOC and Saudi Aramco used it to keep exports from collapsing completely during the first weeks of the war.
Meanwhile, some oil leaked out of the Strait of Hormuz. In May, ship operators willing to risk Iranian attack started taking advantage of a U.S.-supervised route near Oman, defying Iran’s demands to use its own vetted route. They shuttled back and forth at night with location systems and mobile phones turned off, and offloaded to tankers waiting outside the strait. Flows from Kuwait, Iraq, and the UAE started to rise again.
But Iranian-backed Houthi rebels in Yemen disrupted the Yanbu workaround in July by declaring a blockade of Saudi oil shipments, threatening the Bab el-Mandeb — a repeat of the Hormuz disruption.
In response, the Saudis redirected Asia shipments northwest to the Mediterranean, either through the Suez Canal or — for tankers too big to use it — a pipeline across Egypt to another tanker. The oil then made a huge detour as it was shipped around Africa and back to Asia.
Then the East-West pipeline was attacked earlier this month and forced to shut down, potentially for weeks.
With oil loading halted at Yanbu from Sept. 11, the Saudis shifted again, joining other Gulf producers sending oil through the U.S.-guided corridor in the Strait of Hormuz. On Monday, six supertankers loaded 12 million barrels at Saudi terminals on the Persian Gulf, according to shipping data company Kpler.
U.S. officials have touted the role of the southern corridor in keeping energy flowing while their blockade increases pressure on Iran. Adm. Brad Cooper, head of U.S. Central Command, said in a video on social media Saturday that U.S. forces had assisted 2,000 commercial ship transits and the transport of more than 1 billion barrels of oil from Gulf partner nations over “the past couple of months.”
