Hormuz oil flows fall as reopening negotiations remain stalled

Gulf producers weigh alternate routes after attacks hit regional energy infrastructure

Persian Gulf energy producers are preparing for Iran’s control of the Strait of Hormuz to last, according to The Wall Street Journal. Gulf officials prefer a negotiated reopening to renewed military action between the United States and Iran, which they say could expose Arab states’ energy infrastructure to further attacks.

The disruption is reflected in shipping data. Crude oil exports through Hormuz fell to about 2.2 million barrels a day last week from about 8.5 million barrels a month earlier, according to commodities data provider Kpler. Before the conflict, about 20 million barrels a day of oil and petroleum products passed through the waterway. Iranian exports were cut in half in one week to 47,000 barrels a day.

Negotiations have stalled over Iran’s demands for financial relief and a prohibition on U.S. and Israeli warships in the strait. The U.S. has rejected an agreement that would allow Tehran to impose impediments on shipping, according to mediators cited by the Journal. Iran’s Foreign Ministry spokesman Esmail Baghaei said Monday that the waterway would not open until the U.S. stops and makes amends for what he called aggressive actions, including the blockade of Iran’s ports.

Attacks have also affected routes intended to reduce dependence on Hormuz. The United Arab Emirates said four of its ships were hit by Iranian attacks last week while attempting to transit the strait. Adnoc, the U.A.E.’s state oil company, said four of the 16 ships it has had struck since the beginning of the war were hit by missiles or drones during the past week.

Saudi Arabia had preserved much of its export capacity by piping oil across the desert to a port on the Red Sea. That route came under attack from the Iran-backed Houthi militia in Yemen. The Houthis claimed responsibility Sunday for an attack on a Saudi refinery in Jizan; the Saudi Energy Ministry confirmed that a fire occurred at the facility but did not confirm its cause.

Egypt also came under attack. A drone strike on a gas tanker at the port of Damiatta set fire to two ships, including a U.S. gas-storage tanker, according to the Journal.

Between Feb. 28 and July 30, Iran and allied militias in Iraq conducted at least 172 attacks on nonmilitary infrastructure across the six Arab Gulf states, according to the Armed Conflict Location and Event Data conflict monitor. Energy facilities, including oil infrastructure, gas plants, power plants and desalination plants, accounted for about half of those attacks.

Gulf countries are considering expanded pipelines to the Red Sea and the Gulf of Oman, along with greater investment in storage facilities. Producers have also tried to move shipments through the strait near Oman with their location beacons turned off.

Eric Alter, dean of the Anwar Gargash Diplomatic Academy in Abu Dhabi, said producers could use workarounds to reduce pressure on Hormuz, but “it has not been enough to render Iran’s veto irrelevant.” Umer Karim, a Gulf security researcher at the University of Birmingham, said Arab Gulf states could no longer ensure “complete safety and openness” of the strait or rely on it for transport and trade. “Thus there is no other option for now but to concede to a degree to Iranian demands,” Karim said.

Karim said Iran appeared likely to seek control over trade and oil and gas exports connected to the strait, allowing it to dictate terms to Gulf countries. Ellen Wald, a senior fellow at the Atlantic Council’s Global Energy Center, said a near-term agreement could increase maritime traffic through Hormuz without removing the broader threat.

“But ceding control over inbound and outbound traffic to Iran, even on a ‘temporary’ basis, will not resolve the larger issues and leaves their exports subject to Tehran’s whims for the foreseeable future,” Wald said.

Oil prices remain below their highs from the fiercest fighting last spring, helped by subdued demand from China, Japan, India and Europe. But global oil inventories have fallen by more than 400 million barrels over the past six months, leaving less supply available to absorb another shock or an increase in demand.