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By: Sebbie, Edward Graham
Traffic through the world’s most important oil chokepoint has fallen back to single digits, with tankers going dark, insurers pulling back, and oil prices pushing back above $100. This was orchestrated by a resumed fight between Iran, the U.S., Israel and their regional allies.
Preliminary ship-tracking data showed only seven commodity vessels transited the Strait of Hormuz on Wednesday, compared with 12 the previous day and a 10-day average of 14. Of those seven, four vessels exited and three entered. The figures are likely understated, as some vessels could be sailing through the waterway with their transponders turned off.
A day earlier recorded a lower count of six commodity vessels on Tuesday, down from nine a day earlier and below the 10-day average of about 12.
Of Wednesday’s exits, one was a very large crude carrier – the Finland Prosperity – carrying nearly 2 million barrels of crude. No LNG tankers exited.
The drop marks a sharp reversal of a tentative reopening in late August.
In recent weeks, Washington had boasted of increasing success guiding tankers through the strait, which carried a fifth of oil supplies before the war. But any such gradual reopening appears to have been set back by a resumption of fighting this month.
Iran and the U.S. on Wednesday hit tankers in the biggest wave of attacks on shipping since the war began. Iran’s Revolutionary Guards said they had attacked 10 ships near the Strait after the U.S. sank five Iranian oil tankers. A tanker carrying Iraqi fuel oil was struck by a drone off Khor Fakkan, near the strait’s entrance, while a liquefied natural gas tanker was reported damaged in the Emirati port of Khor Fakkan.
On land, the IRGC said it fired ballistic missiles at a base used by U.S. forces near Al Azraq in eastern Jordan, but the latter said its air defenses intercepted 18 of 20 missiles, with two falling in unpopulated areas.
At the same time, escalating combat between Saudi Arabia and the Iran-aligned Houthi movement has added a second front for energy markets. The Houthis launched an attack on four cities in Saudi Arabia Tuesday, causing huge fires visible from space at oil installations. Saudi authorities said 73 people were wounded.
Estimates now diverge sharply between visible traffic and total exports.
Chief economist at consultancy Rystad Energy, Claudio Galimberti, said visible flows through Hormuz had fallen back as low as 2 million barrels per day, having reached as high as 8 million to 9 million bpd in the week before fighting resumed on August 30.
Goldman Sachs, which includes vessels sailing without transponders, estimates total Gulf oil exports are still running at 15 to 16 million bpd – about two-thirds of pre-war levels – suggesting much of the trade has gone dark.
The uncertainty has hammered fuel markets. The politically sensitive average U.S. diesel price hit a fresh all-time high above $5.94 a gallon on Wednesday, with gasoline also at seasonal records.
Shipping executives say the economics of the strait have changed. An executive at Dubai’s ENOC said oil vessel transit costs through Hormuz have “escalated significantly” after the war. Market sources put war-risk insurance at 5-6% of cargo value, or roughly $10 million extra per VLCC, on top of war-risk premiums that can reach $10-20 million per voyage.
At the Bab el-Mandeb Strait, the other key Mideast chokepoint at the mouth of the Red Sea, some 28 commodity ships transited Wednesday, similar to the 10-day average of 27, suggesting shippers are more willing to risk the Red Sea than Hormuz for now.
The disruption is hitting Asian importers hardest. South Korea, which relied on the waterway for 61% of its crude oil imports and 54% of its naphtha imports last year, is now in talks with France on maritime security.
South Korean President Lee Jae Myung and French President Emmanuel Macron discussed cooperation on security and freedom of navigation in the Strait of Hormuz during a summit in Paris Tuesday, but Seoul said the talks did not concern troop deployment and that it was still in a review stage.
Seoul has sent an inspection team to the United Arab Emirates to assess security conditions, after Iran sought explanations through diplomatic channels about a possible South Korean role.
For now, the market is left watching the radar screens. With seven ships on the board where fourteen used to be the norm, the strait remains technically open – but commercially, it is choked off.
