Shipping attacks resume in Strait of Hormuz, threatening oil export recovery

Brent holds near $100 a barrel as analysts warn recovery is fragile

A new wave of attacks on vessels near the Strait of Hormuz is threatening a recovery in Middle Eastern oil exports that had pushed regional crude shipments back toward prewar levels. The U.K. Maritime Trade Operations, which is affiliated with the Royal Navy, has reported seven strikes on ships around the waterway since Sept. 28, with all attacks occurring near the strait’s narrowest point.

The rapid rebound in shipments in recent weeks followed earlier U.S. and Israeli strikes that began a war with Iran in February and that knocked out Iranian radar and communications along the contested waterway. The United Arab Emirates and other producers responded by establishing shuttle-run systems: tankers load inside the Persian Gulf, exit through Hormuz, and transfer crude to vessels waiting outside the strait.

But the new attacks are testing that workaround. On Sunday, UKMTO reported another strike, though it did not specify when the incident occurred. Iran’s Islamic Revolutionary Guard Corps navy issued a warning on Saturday to ships planning to use the U.S.-backed route through the strait, saying they would be targeted and destroyed. “Don’t trust U.S. Navy and don’t use south corridor at all and don’t put your life in danger,” a radio message transmitted on a public shipping channel said.

A U.S. official said Iran’s ability to target ships has improved in recent weeks, adding to risks in the waterway. The United States had said several weeks earlier it would strike Iranian oil tankers in response to Tehran’s attacks, but it has since backed off that effort after Iran unleashed a wave of missiles at a U.S. air base in Jordan, the official said.

Among the seven vessels attacked in the past week, at least four had completed two or more roundtrips in and out of the strait since June, according to ship tracker Kpler. Al Funtas, a very large crude carrier operated by Kuwait Oil Tanker Company, was completing its fifth shuttle run between Kuwait’s Port of Mina Al-Ahmadi and ports in the Gulf of Oman when it was attacked on Sept. 28. Kazimah III, another VLCC operated by KOTC, had carried out three shuttle runs and was on its way into the Persian Gulf when it was hit on Oct. 1. Ships of that size can carry as many as two million barrels of oil.

The renewed attacks may already be taking a toll on shipping flows. Kpler said regional crude exports excluding Iran averaged at least 16.5 million barrels per day from Sept. 1 through Sept. 28, close to prewar levels. But Rory Johnston, founder of oil research firm Commodity Context, said he has seen a potential pullback in recent days and estimates flows are down by two million to three million barrels per day, though he cautioned those initial totals could be revised higher as better information becomes available.

“The recent pace of flows, while impressive, has never been sustainable and has already come at great expense,” Johnston said. He noted that part of the surge may reflect exporters rushing barrels out before a feared new escalation. Gulf oil producers are paying between $30 million and $40 million for a round-trip shuttle run in and out of Hormuz — or $15 to $20 a barrel — according to shipbrokers, and that figure does not include insurance costs.

Saudi Arabia had shifted exports back through Hormuz after a Sept. 10 attack on its East-West pipeline and attacks on its ships by Yemen’s Houthi militants interrupted Red Sea shipments. Standard Chartered estimates total Saudi exports rebounded to 6.9 million barrels per day in September from 2.45 million in August. The East-West pipeline remains below capacity, but renewed loading at the Yanbu port on the Red Sea could help offset another Hormuz slowdown, said Hamad Hussain, a senior economist at Capital Economics.

International benchmark oil prices remain around $100 a barrel despite recovering exports, reflecting fears that renewed attacks could again curb flows and keep freight and security costs elevated. Brent settled Friday at $102.25 a barrel, up nearly 5% for the week. Capital Economics expects Brent to remain around $100 through the end of the year.

“The step-up in attacks on ships highlights how the current equilibrium in the oil market is fragile and could easily be shattered,” Hussain said. “This would especially be the case if there is further escalation and energy infrastructure is targeted.”

Kim Fustier, senior global oil and gas analyst at HSBC, noted that most of the crude that crossed the Strait of Hormuz in September went via tankers transferring oil to ships waiting off the coast of the U.A.E. and Oman. “All of this suggests that Middle East exports — at least for crude — are rising, but at enormous cost,” Fustier wrote.

Firm data on shipping flows comes with a lag, because many ships are operating without their transponders switched on to avoid becoming targets. The renewed attacks come as President Trump, who has claimed full U.S. control over Hormuz, weighs renewed military action against Iran. Any fresh disruption would hit a global economy already grappling with high energy and rising borrowing costs.