Tankers keep oil flowing through Strait of Hormuz despite surge in Iranian attacks

Within 24 hours of the U.S. and Israel going to war with Iran, Tehran responded with a wave of attacks on commercial ships in the Strait of Hormuz. Iran's campaign was initially successful, with crude exports plunging nearly 90% to 1.8 million barrels a day in March compared with 16 million bpd in February, according to data provided by Kpler. But crude flows have rebounded over the past eight months as the U.S. military provides protection to tankers transiting Hormuz.

Tehran has responded by escalating its attacks in recent weeks. As of Oct. 27, at least 30 vessels, mostly oil tankers, were hit this month, leaving at minimum 16 seafarers injured, according to data from the International Maritime Organization. Ship attacks doubled in October compared with 15 confirmed incidents in September.

"It's a difficult situation. Ships are attacked really on a daily basis," said Jakob Larsen, chief safety and security officer at Denmark-headquartered BIMCO, one of the big international shipping trade associations.

Yet actual crude exports through Hormuz stood at nearly 11.1 million bpd on average in October, only about 2% lower from September despite the sharp escalation of violence, Kpler's data shows. Crude prices have surged more than 13% this month, with international Brent trading above $117 a barrel on Friday.

"On balance in terms of oil coming out, there hasn't been a massive impact," said Mary Melton, senior tanker analyst at Braemar, a ship broker headquartered in London.

Shippers have adapted by setting up a shuttle system to reduce the risk of attack. Tankers load crude at Persian Gulf ports, sail through Hormuz with their transponders turned off and transfer the cargo to tankers waiting in the Gulf of Oman that then deliver it to refiners in Asia. This reduces insurance costs for the ships waiting outside the strait, Melton said. The shuttle system has been effective, with flows through Hormuz surging more than 70% since July, according to Kpler.

Melton said the system is inefficient, logistically complicated and expensive. About 20% of the world's supertanker fleet is tied up helping to shuttle oil out of the Gulf, Melton said. Tanker rates have exploded: it cost $249,000 per day to hire a supertanker for the journey from the Gulf of Oman to Asia in early September, rising to more than $900,000 per day by the first week of October. That translates to about $21 in transportation costs per barrel of crude oil compared with $6.50 a barrel in September, the analyst said.

"If you're an importer in Asia, you're used to paying almost nothing for freight," Melton said. "Then you're facing 20% to 30% of the actual delivered cost of crude is going to freight. That really starts impacting your margins as a refiner."

More Gulf oil producers are now covering the cost and risk of shipping through Hormuz in a bid to claw back market share in Asia from the U.S. and other Atlantic producers, and are increasingly using their own tankers to run the gauntlet, Melton said.

It is unclear how long the shuttle system can sustain current export levels. The tankers transiting Hormuz are totally dependent on air support from the U.S. military for their security, Larsen said. "I don't think there would be many shipowners willing to take the risk if they didn't have that air cover from U.S. fighter jets and helicopters and drones," he said.

It is also uncertain how long the U.S. military will remain engaged, particularly if Democrats regain control of Congress after Tuesday's elections and demand that the president end the war. The U.S. has told several Gulf Arab nations to be ready for a short but intense military campaign following the Nov. 3 midterm elections, people briefed on the conversations told The Wall Street Journal. The U.S. Navy, enforcing a blockade against Iran, has warned ships not needing to transit the region to remain well clear.