Hormuz Disruptions Drive Oil Shipments to Costly Routes

Oil prices rose on Thursday after Houthi attacks in Saudi Arabia led the United States to order some diplomats and family members to leave U.S. missions in the Kingdom. Brent crude futures gained $1.29, or 1.2%, to $110.11 a barrel at 00:34 GMT, while U.S. West Texas Intermediate crude rose 97 cents, or 1%, to $98.12.

At least one person died and eight were wounded at a civilian airport in Dammam on Wednesday. Two people also died in a drone attack on a Saudi oil field. The U.S. Embassy in Riyadh issued a security alert warning of possible further Houthi attacks after recent deadly strikes, including at Riyadh's airport.

Attacks and diplomatic departures

Three U.S. officials said the State Department was preparing to order some personnel and family members to leave U.S. embassies across the Gulf region because hostilities could resume, particularly with the Houthis. Two officials said the departures could include all personnel and their families from the U.S. Mission to Saudi Arabia. U.S. officials told Reuters the department also planned to withdraw family members from a number of other U.S. missions in the region.

Iranian state media reported several explosions on Wednesday in the Karpan area of Sirik, in southern Hormozgan province overlooking the Strait of Hormuz. The official IRNA news agency said, “A few minutes ago, the sound of several explosions was heard in the Karpan area of Sirik, in Hormozgan Province,” adding that “local sources have not yet disclosed the nature of these explosions.” Iranian media said they didn't know the nature or origin of the explosions.

Oil moves around the Strait

Middle East crude exports excluding Iran averaged 24.6 million barrels per day in the week to Oct. 18, according to data compiled by energy intelligence firm Kpler. The comparable pre-war average was 23.3 million barrels per day. Kpler said at least 16.5 million barrels per day of crude left the region excluding Iran between September 1 and 28.

Saudi Arabia and the United Arab Emirates have diverted more crude to terminals outside the Strait of Hormuz, using alternative pipelines, offshore transfers and tanker shuttles. Kpler said, “The volume recovered. The route did not.” Its September analysis found that 40% of regional crude exports bypassed Hormuz, compared with 17% before the war. About 83% of regional crude exports crossed the strait before the war.

In September, about 9.9 million barrels per day, or 60%, crossed the Strait of Hormuz. Another 23% was loaded outside the strait, primarily at Fujairah in the UAE, while 17% moved through Saudi Arabia's Red Sea export network. Most exports still used the waterway.

Saudi Arabia increased shipments through its 1,201-kilometer East-West Pipeline, known as “Petroline,” from Abqaiq-Gawa fields in the Eastern Province to Yanbu on the Red Sea. The UAE increased use of its 406-kilometer Habshan–Fujairah oil pipeline, which bypasses Hormuz. Producers without comparable alternative routes remained dependent on the strait.

Higher costs and shipping risks

Tankers also load inside the Gulf, cross Hormuz with their automatic identification system switched off, and transfer cargo to other vessels near Fujairah or Sohar. More than 70% of crude that crossed Hormuz in August changed tankers offshore near those locations, Kpler said. Analysts track shipments using satellite imagery, vessel movements, loading information and destination checks; estimates may change as they confirm further cargo movements.

Reuters reported at least 18 attacks on shipping over the past two weeks, citing Kpler data. LSEG analysts warned that Iran was targeting tankers beyond the Strait of Hormuz, reaching into the Gulf of Oman and threatening Gulf crude loadings and ship-to-ship transfers. Iranian attacks and the threat of further escalation have raised freight rates, war-risk insurance premiums and other costs, according to the International Energy Agency assessment cited by Gulf News and reporting cited from the Financial Times.

Iran's Foreign Minister Abbas Araqchi told the Financial Times on Wednesday that Iran was fully prepared to defend itself. President Masoud Pezeshkian told state media the United States couldn't expect dialogue while blockading and threatening Iran.