Iranian attacks on vessels transiting the Strait of Hormuz have become an almost daily occurrence. The International Maritime Organization tracked 131 confirmed incidents near the narrow waterway from the start of the war on February 28 through November 9.
London: As US President Donald Trump weighs his next steps in the Iran war, Gulf energy producers have adapted to a no-war, no-peace reality that is making their operations more expensive and risky. Even without renewed full-scale fighting, those additional costs could help put a floor under global oil prices.
The question is how long this uneasy equilibrium can last.
Benchmark Brent crude fell below $90 a barrel on Tuesday for the first time since late August, extending a decline of more than 20% from its recent high of $118 on October 30, as investors increasingly discount another major escalation in the US-Iran conflict following the Republican Party’s rout in the US midterm elections.
Trump on Monday reinforced that view, saying he would hold off on new military action against Iran following appeals from Gulf allies.
But the US military continues to build up forces in the Middle East. Mediation efforts led by Qatar and Pakistan also continue, though Washington and Tehran appear far apart on some of the thorniest issues, particularly Iran’s nuclear programme.
This suggests Trump’s current moratorium on major strikes may not signal an imminent end to the conflict. It may instead be a tactical pause as Trump considers whether another round of airstrikes can improve Washington’s hand in seeking a favourable deal to end a war now in its ninth month.
Low-intensity conflict is becoming the Middle East’s new normal even as the region’s crude exports recover.
EXPENSIVE WORKAROUNDS
Crude flows out of the Gulf have staged a striking rebound in recent months.
Traffic through the Strait of Hormuz has averaged 10.5 million barrels per day (bpd) since the start of October, according to Kpler. While that is still below the pre-war average of 13.5 million bpd, it is up substantially from the depths of the disruption.
Moreover, once alternative routes bypassing Hormuz are included, total average Gulf crude exports have risen to 16.7 million bpd since the start of October, just shy of the pre-war level of 17 million bpd, according to Kpler.
That recovery, coupled with Trump’s less hawkish tone, helps explain why crude oil prices have fallen so sharply in the past week. But this obscures an important distinction: the risk of another full-scale war has declined, but the cost of living with the existing conflict has not.
Iranian attacks on vessels transiting the Strait of Hormuz have become an almost daily occurrence. The International Maritime Organization tracked 131 confirmed incidents near the narrow waterway from the start of the war on February 28 through November 9.
The number rose sharply to 35 in October, the highest monthly total during the conflict. The real figure is likely higher because shipowners often choose not to report incidents that cause little or no damage.
Gulf oil and liquefied natural gas (LNG) exporters have responded by sending tankers through Hormuz in convoys, using narrow routes close to Oman’s coast under US Navy protection and conducting ship-to-ship transfers to limit the exposure of any one ship.
While this complex process is working, it comes at a high price. Freight and insurance costs remain about 10 times pre-war levels.