Middle East Oil Exports Surge Past Pre-War Levels Despite Attacks

Crude oil exports from the Middle East have exceeded pre-war levels for part of September, according to Kpler data. Despite the rise in exports, the region has faced a significant increase in attacks on vessels, particularly in and around the Strait of Hormuz. The data reveals that exports ranged between 19.5 million and 22.5 million barrels per day during four days at the end of September, surpassing the pre-war average of 18 million barrels per day.

Export Levels Surpass Pre-War Figures

Crude oil exports from the Middle East surpassed pre-war levels during four days in the final week of September, as per Kpler’s preliminary data. The seven-day moving average for crude exports stood at 18.5 million barrels per day on October 1, compared to the average of around 18 million barrels per day prior to the conflict. This surge is attributed to increased activity from Saudi Arabia and the United Arab Emirates, which have been leveraging alternative routes to bypass the Strait of Hormuz, including via the Red Sea and through pipelines.

Alternative Routes and Increased Shipments

The recent recovery in exports has been driven by the reactivation of Saudi Arabia’s East-West pipeline, which was hit by strikes in early September but resumed operations on September 22. This pipeline connects Saudi Arabia’s eastern oil fields to the Red Sea port of Yanbu, allowing crude to bypass the Strait of Hormuz. Similarly, the UAE has been able to utilise its pipeline linking Abu Dhabi’s fields to Fujairah, a terminal just outside the strait on the Gulf of Oman.

Ship-to-ship transfers in the Gulf of Oman have reached their limits, necessitating the use of more supertankers to shuttle crude through Hormuz. This has led to a significant increase in tanker activity, with many vessels opting to transit via the Red Sea to avoid the risks associated with the Strait of Hormuz.

Risk and Attacks Increase

Despite the increased shipments, attacks on tankers continue to rise, according to shipping intelligence firm Marisks. At least seven incidents were reported in September, with the most recent involving the very large crude carrier Kazimah III, which was struck by an unknown projectile on October 1, causing a fire onboard. All crew members were reported safe and subsequently evacuated.

The region’s heightened kinetic threat is further exacerbated by the lack of clear navigation information. Ships with their Automatic Identification System (AIS) transponders turned off are not included in Kpler’s calculations, complicating efforts to monitor and predict tanker movements. This uncertainty makes the region more dangerous for vessels transiting through the Strait of Hormuz.

Logistical Challenges and Economic Implications

The recovery in exports is providing a robust cargo base for tanker markets, although brokers caution that more efficient logistics could eventually erode some of the inefficiencies currently supporting very large crude carriers (VLCC) earnings. Sentosa Shipbrokers noted that while higher Gulf crude exports and the return of Yanbu provide firm underlying cargo demand, improved logistics could gradually reduce ship-to-ship activity and unwind part of the "exceptional inefficiency premium" supporting VLCC earnings.

Furthermore, Iraq’s state-owned Oil Tanker Company (IOTC) has taken control of getting its barrels through the war zone, transporting a 2-million-barrel cargo through Hormuz on a chartered VLCC. IOTC is now in talks to acquire its own crude tankers as Baghdad looks to rebuild a national deepsea fleet decimated by decades of war and sanctions.

What This Means for Operators

For operators, the current situation presents both opportunities and challenges. While the recovery in crude oil exports provides a stable cargo base, the ongoing attacks and logistical constraints create a volatile environment. Navigating through the Strait of Hormuz remains a high-risk endeavour, with the increased frequency of attacks necessitating vigilant monitoring and adherence to safety protocols.

Operators must be prepared for the possibility of further disruptions, including the potential for alternative routes to become saturated and for logistical inefficiencies to persist. Understanding and adapting to these dynamics will be crucial for maintaining operational continuity and profitability in the face of ongoing regional instability.