Increase in Hormuz oil traffic is papering over a darker reality

Increase in Hormuz oil traffic is papering over a darker reality

Reports that more oil is getting through the Strait of Hormuz have been heralded as a win for the Trump administration, but experts say this kind of happy talk hides the fact that the war remains in a quagmire. As shipping costs rise and Iran continues to attack vessels, world markets — including fuel — will remain in peril for the foreseeable future. In other words, no matter how much narrative-shaping is attempted to alter American perspectives before the midterms, prices for consumers will not come down to so-called pre-war levels in time for any change. If anything, the diesel crisis continues, as does the impact of ships carrying dry bulk (fertilizer, aluminum, petrochemicals, grains, sulfur, cement, industrial minerals, etc.) still stranded in the Persian Gulf. Moreover, with news that another U.S. carrier strike group led by the USS Roosevelt has been sent to the Gulf, it is almost certain that President Donald Trump wants to keep the naval presence in place to protect these oil transfers (and perhaps support future military operations). But how long can the U.S. military sustain this costly level of activity in the Gulf in order to keep the fuel markets from going off a cliff? And it’s not like these ships are moving without challenge. Despite what Trump and defense secretary Pete Hegseth say about the obliteration of the Iranian military, attacks on vessels attempting to cross the Strait last week continued, many under the radar of the mainstream press. So while the administration and its social media influencers have declared victory over Tehran, a very expensive cat-and-mouse game continues unabated — one that Rose Kelanic, director of the Middle East Program at Defense Priorities, says may be impossible to sustain for the long term. “We're still in this limbo where Iran can't fully close the strait, but the U.S. can't fully open it either,” she tells Responsible Statecraft. “If the U.S. wants oil to go through the Strait without getting to a peace deal with Iran, it needs to commit a large amount of military force to do that,” Kelanic continued. “Whether that's really sustainable or wise or fair to the American taxpayer is an open question.” Doing the Persian Gulf limbo Pro-war influencers like Will Chamberlain took to posting on X “daily reminders” that the “strait was open and we are winning” last week, while blasting "doomers" for saying the war policy has failed and is hurting Americans back home. What is really happening? There are myriad ways of tracking shipments through the strait: through ships’ Automatic Identification Systems, radar and satellite imagery, and monitoring actual crude volume. Some trackers use a combination of sourcing. Last week, all industry trackers found an increase in ships entering and leaving the strait since the start of the war, with volumes ranging from 13 million to 17 million barrels per day and 6 to 17 tankers per day getting through. This compares to an average of 20 million barrels getting through the strait before the war. Kpler, a private data and analytics platform, has been the most cited in recent press reports. It said that transits of oil averaged 13 million barrels a day at the end of the month. It is also tracking how much oil is getting out of the Middle East through other ports on the Red Sea on the end of Saudi Arabia’s East-West pipeline, which went back on line at the end of September. This bypass route has allowed another 4 million barrels per day to exit the region, according to Kpler. Much of the higher volume is made possible now by ship-to-ship transfers, notes Amir Handjani, an energy lawyer and public affairs executive, in an interview with RS. This is where private companies come into ports and with AIS transponders off, undergo the very risky and expensive task of transferring fuel cargo into government “shuttle” vessels that travel through the strait “dark” and then offload onto larger tankers in safer, open waters. Ship-to-ship is also used for shuttling through Hormuz bypass routes. “It’s not moving without cost and without huge investment by the U.S. Navy. Is that sustainable?" asked Handjani. "I don’t know, I guess anything is possible.” Though government tankers can avoid insurance costs, the premiums on private shipping are increasing, in part because of continued attacks, and supertankers or Very Large Crude Carriers (VLCCs), which are needed to meet the shuttles on the other end, are now in short supply. “The paradox here is that physical oil movements are recovering, but the maritime system is doing so through longer voyages, ship-to-ship transfers, rerouting, and extraordinary war risk costs, rather than a return to normal operations,” pointed out maritime expert Sal Mercogliano on the October 3 episode of his podcast. “Add to (that) the ridiculous rates being charged for very large crude carriers — $1.2 million out of the Persian Gulf and $800,000 out of the Gulf of Oman heading to Asia.” The diesel dilemma Any analysis of the situation would not be complete without talking about diesel, which is a refined product of crude. According to experts, the first impact point is the Hormuz chokepoint for oil exports explained above. If and when the crude gets through there are fewer refineries on the other end because of Iranian attacks on Gulf facilities , and refineries in both Ukraine and Russia have been targets in the war there. Moscow has banned exports as a result. The U.S. is a major exporter of diesel, but it’s not making up for the reduction in global supply. Shrinking supply is wreaking havoc on prices (including in the U.S.), particularly because diesel is used for overland shipping, farming, and transportation throughout the U.S., Europe and the Global South. Under pressure from the Trump Administration, the G7 countries agreed Friday to release 100 million barrels of crude and diesel from reserves. This is on top of an earlier agreement in March via the International Energy Agency to release 400 million barrels. Trump said the Europeans were not living up to their end and has threatened to ban U.S. exports of diesel, which experts tell RS would be a disaster for prices — in the U.S. and abroad — in the long term. As for American oil reserves, experts say they are at the lowest point since 1983 thanks to releases of hundreds of millions of barrels by the Biden and Trump administrations during the wars in Ukraine and now Iran. Recent news of vessels getting through the strait won’t make up for all the problems plaguing the system. “It's all still net negative — the amount that's getting out — compared to what the market demands,” Kelanic pointed out. “We're depleting our inventories more slowly, but those buffers are also much less robust than they were in February.” Ezana Tedla, a macroeconomic analyst at the Bourse & Bazaar Foundation, tells RS that without a resolution of the war and an end to the threat of attacks on shipping, the markets remain uncertain, which is why Brent crude pricing was still $102 a barrel on Sunday even after all the “good” news last week about the strait. “By looking at global macro financial data, you can see that there's significant pressure by the unresolved part of the conflict,” Tedla said. He points to a recent research note from J.P. Morgan that basically “said we don’t know what’s going on” and therefore can’t make forecasts about prices, he added. It is not clear, either, how long the Navy can sustain the tempo to maintain the blockade and the security umbrella needed for ships to pass through, experts noted. The Navy is already stretched thin, with fewer ships to rotate in and out of the Middle East without compromising its security posture elsewhere. The bottom line is that prices will not come down before voters head to the polls next month. However Trump might spin it, small victories in the Strait of Hormuz do not reflect any end to the war. “Unless (Trump) signs a deal with Iran of course, that would help a lot,” said Handjani. “That is what the market is really looking for.”