Saudi Arabia Restores Oil Exports to 6M Barrels Daily Amid Gulf Shipping Resurgence
Saudi Arabia has restored oil exports to 6 million barrels per day despite regional chokepoint blockades, as rising shipping rates and US strikes help reopen the Strait of Hormuz.
Despite the blockade of three critical oil chokepoints by Iran and its allies—the Strait of Hormuz, the East-West pipeline, and the Bab al-Mandeb Strait—Saudi Arabia has resumed exporting 6 million barrels of oil per day, according to research firm Kpler. Following US strikes on Iranian detection and strike infrastructure, alongside economic incentives that encourage tankers to take risks and move oil from the Gulf to thirsty Asian markets, the Strait of Hormuz is now partially open.
Chinese imports, the drop in which previously prevented an oil price spike, are beginning to climb again. This raises the pressing question of when these developments will reflect at the local fuel pump. While the intensity of kinetic warfare has subsided, the economic conflict continues at full throttle. On one side, Iran seeks to prevent Gulf states from exporting oil and gas, thereby exerting political and economic pressure on them and their alliance with the United States. On the other side, Washington and Gulf capitals are working to cut off Iranian oil exports while ensuring that Arab oil continues to flow.
For months, it seemed that Iran had the upper hand, successfully generating enough fear of transit through the strait to deter shipping companies. However, market forces are now generating a solution: as the cost of passing through Hormuz increases, shipping companies find it lucrative enough to absorb the risk. One such company is the South Korean conglomerate Sinokor, controlled by the Chung family, owners of the Hyundai group.
Ship-to-Ship Transfers and Rising Shipping Costs
Sinokor began transferring oil outside the Gulf with transponders and lights turned off, conducting ship-to-ship transfers outside Hormuz before heading back inside for another run. On August 30, one of their vessels was hit by Iranian fire. On September 1, the US military struck Iranian radars and targeting systems, enabling Sinokor to maintain its route with an increasing number of tankers.
"This strategy is called 'ship-to-ship transfer.' Vessels load inside the Gulf, exit Hormuz with navigation systems turned off, and then connect with tankers waiting in the Gulf of Oman outside the strait," explains Dr. Yehoshua Krasna, a former senior intelligence official and head of the regional cooperation forum at the Moshe Dayan Center at Tel Aviv University. "The Emiratis have been operating this way for several weeks, and the Saudis have increased their use of this route because the volume of oil they manage to export via the Red Sea has been constrained by damage to the East-West pipeline. The method carries risks, but the profits are immense."
Because Sinokor is a private company that does not report its earnings, exact profits are difficult to ascertain. However, shipping rates through Hormuz tell a clear story: the cost for a vessel moving from the Persian Gulf to China has surged over the past two months from $382,000 per day to more than $1.2 million per day, more than a triple increase, driven in part by climbing oil prices.
The US-Forged Corridor and Chinese Refineries
"The Americans have 'paved' a path near the coast of Oman," explains Dr. Ilan Gildin, a hedge fund manager and family office partner, "allowing the Saudis and other Gulf states to export significantly more oil. Currently, 12 to 13 million barrels of oil leave Hormuz daily, double the volume of a month ago." Nevertheless, he emphasizes, "This is still less than the 20 million barrels exported previously, but it is worth remembering this also comes at the expense of Iran."
Iran is struggling heavily to export its own oil and sell it at a discount to China, as it used to do, due to the counter-blockade enforced by the United States. Although oil prices remain elevated, with Brent crude trading around $100 a barrel, China is feeling comfortable enough to resume imports. According to Dr. Gildin, Chinese oil refineries are ramping operations back up, rising from a low of 5 million barrels per day back toward approximately 7 million barrels daily.
While this recovery could eventually exert downward pressure on fuel prices, relief may not arrive immediately next month. Mediterranean fuel price indices remain higher than last month, threatening further increases following a record peak that prompted Finance Minister Bezalel Smotrich to announce a half-shekel reduction in the fuel excise tax. If the quiet transit through Hormuz becomes the new normal, price declines could eventually follow. Yet, Dr. Gildin warns that this dynamic could conversely fuel escalation, as diminishing Iranian leverage raises the risk of conflict.
