Persian oil shortage: oil supplies through Hormuz have sharply decreased again

In October, the volume of oil and gas condensate transportation through the Strait of Hormuz decreased to half of the pre-war level. Analysts attribute this to the increased attacks on tankers in the Strait. On October 22, the price of Brent crude oil reached $113 per barrel. Experts expect that prices will remain at this level in the coming month, which may lead to an increase in the cost of Russian oil.

Why has the supply of hydrocarbons decreased

The volume of oil and gas condensate transportation through the Strait of Hormuz decreased to 7.2 million barrels per day in the week from October 10 to October 16. This is stated in the review of the analytical company "Euler", prepared on the basis of tracking data of marine vessels. At the end of September, a record volume of raw materials passed through the strait since the beginning of the conflict between Iran and the United States — 10.5 million barrels per day. Thus, current oil supplies through the Strait of Hormuz are about 51% of the pre-war level.

Analysts estimate the total export of oil and petroleum products through the strait at 10.2 million barrels per day against 12.5 million barrels a week earlier. Transshipment from ship to ship remains one of the key schemes for transporting hydrocarbons: small vessels, often with disabled geolocation systems, pass through the danger zone, and then transfer raw materials to tankers. According to Euler's calculations, about 90% of oil, condensate, petroleum products and liquefied petroleum gas (LPG) is transshipped off the coasts of Fujairah in the UAE and Sohar in Oman.

Andrey Polishchuk, the company's senior analyst for the oil and gas and transport sectors, attributes the decline in supplies to increased tanker incidents in the region. Kirill Bakhtin, head of the BCS World Investments Russian Stock Analysis Center, also believes that the reduction in transportation volumes could have been caused by strikes on tankers.

Foreign media have been reporting on explosions in the Strait of Hormuz for several weeks. The last one occurred on October 21, north of the coast of Oman, the Fars news agency reported. On October 17, the Islamic Revolutionary Guard Corps (IRGC) officially announced that two supertankers with oil had been blown up by mines. Each vessel was carrying 2 million barrels of crude oil, while the location detection systems were disabled.

The memorandum of understanding signed in July between the United States and Iran, which provided for the unblocking of the Strait of Hormuz, effectively expired after the resumption of hostilities. Washington has declared a blockade of Iranian ports, and Tehran has closed the waterway to ships from unfriendly countries.

According to Kirill Bakhtin, the main reason for the decrease in transportation volumes through the Strait of Hormuz is not so much related to the strikes that have already occurred, but rather to expectations of a possible escalation in the region in the near future.

In late September and early October, a working scheme was developed for the passage of ships through the Strait of Hormuz using the shadow fleet. The owners of such vessels were ready to transport raw materials, despite the associated risks, said Igor Yushkov, a leading analyst at the National Energy Security Fund. However, in October, the intensity of attacks on ships from Iran increased.

At the same time, the volume of Middle Eastern oil supplies via alternative routes — from the UAE through the Gulf of Oman and from Saudi Arabia through the Red Sea — remained approximately at the September level in mid-October. According to Euler's calculations, 3.8 million barrels of oil per day were exported from the Emirates from October 10 to October 16, and 1.3 million from Saudi Arabia.

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How does a decrease in transportation volumes affect the cost of oil

Against the background of statements about the next escalation of the conflict in the Middle East, Brent crude futures prices rose. During October, the price fluctuated in the range of $100-109 per barrel, and on October 22, during trading, for the first time since May this year, it exceeded $113 per barrel.

As Igor Yushkov explained, the increase in world prices is due, among other things, to the fact that a number of countries are forced to use strategic reserves to compensate for the shortage of raw materials on the market. As the reserves decrease, the states are actively buying oil, including at high prices.

According to Kirill Bakhtin, if the risks associated with the conflict in the Middle East remain at the current level, Brent quotes will remain close to current values until the end of the month.

Russian oil is traditionally traded at a discount to Brent, in particular due to differences in the quality of raw materials. The size of the discount or premium to the global standard also depends on the port of shipment, the country of destination and current demand.

Due to the reduction in the supply of Middle Eastern oil through the Strait of Hormuz, the cost of Russian raw materials may increase due to a reduction in the discount, Kirill Bakhtin believes. At the same time, it is not worth counting on a rapid increase in domestic exports: this will take more time, the expert added.

Igor Yushkov also believes that a reduction in supplies from the Persian Gulf countries may have a positive impact on both the revenues of Russian oil companies and budget revenues. In addition, the shortage of raw materials on the world market is prompting some countries to reconsider the expediency of sanctions against Russian energy resources.