Gulf oil producers, with considerable support from the US Navy, are jamming crude through the Strait of Hormuz, right under Iran’s nose.
Oil and petroleum product flows through the critical chokepoint averaged 13.1 million barrels per day last week, according to Kpler, a marine data tracking service. That’s just under 80 percent of the 17.1 million barrels that had traveled through the strait each day before the war broke out.
Total Middle Eastern crude flows – through Hormuz and around it – are even more impressive: back to 98 percent of prewar levels, according to JPMorgan.
“Given such a strong volume passing through the strait, it is clear Iran is losing its influence over it,” said Matt Smith, director of commodity research at Kpler.
That milestone is the product of a complex operation involving military-escorted shuttles engaging in surreptitious “dark” transits of the strait that has helped restore significant flows for Middle East oil producers over the past couple of months. Adding to the recent strait traffic is a return of oil from Saudi Arabia that had been primarily diverted to the Red Sea until Iran-allied Houthis attacked a major Saudi oil pipeline earlier this month.
The crucial question: How long can the status quo hold up? The US military is expending tremendous resources in the region just to get oil through – all while global inventories continue to shrink toward operational lows and the price of fuel remains at or near record highs.
Meanwhile, Iran, backed into a corner, is starting to fight back.
A market on edge
The oil market seems to have unlimited tricks up its sleeve to get oil to customers – despite the world’s biggest-ever supply shock.
Global oil inventories have tumbled by around 2 billion barrels during the course of the Iran war, according to JPMorgan, but the market has held out. It has accomplished that remarkable feat through innovative solutions like pipeline diversions and the military-aided shuttle service, but also with an increase in production from outside the Gulf. And, crucially, a significant global decline in demand.
Oil prices remain uncomfortably high, but the market’s creative solutions have prevented crude from approaching its record high set in 2008.
Nevertheless, the current situation in Hormuz simply cannot last forever.
Oil is a physical product, and eventually market forces will take over. With more crude coming out of oil inventories than going in, eventually the market will reach its long-predicted and feared tipping point, at which point stockpiles are insufficient to satisfy demand. When that happens, oil prices will need to rocket higher to sap enough demand to keep the balance in check.
No one knows exactly when that will happen.
Natasha Kaneva, JPMorgan’s head of global commodities strategy, stopped trying to bother guessing.
“For the first time since the start of the Iran conflict, we don’t have a baseline view,” Kaneva conceded two weeks ago in a note to clients. “We simply don’t know how to model the endgame.”
The key, she argues, is no more about how long the war lasts but how long the market is able to clear the physical oil customers demand. Those two may be related: Without a true resolution in the Strait of Hormuz, the world will have to hold out hope that the market’s inventories hold out.
A gas station customer puts $175 of diesel in his truck on September 10, 2026, in Carlsbad, California.Gregory Bull/AP
Who cares?
All of these market mechanics make for interesting economic theory and supply-and-demand analysis. But, practically speaking, it has meant very little for people’s wallets.
Oil has hovered above $90 a barrel all month and spent most of September north of $100. Gas prices are near their highest price of the war. Diesel, contending with the effects of the Iran war and the Russia-Ukraine war, blew past its previous record earlier this month and is priced well above $6 a gallon.
And crude’s return to normalcy hasn’t flowed downstream to petroleum products yet. Refined product flows out of the Middle East remain at just 58 percent of prewar levels, according to JPMorgan, underlining the considerable constraints remaining for gas and diesel.
The fact that oil hasn’t gone to $150 (at least not yet) is cold comfort to Americans who have to spend $100 to fill up their tanks or businesses that have to pay high fuel surcharges to get their deliveries.
Without much new information to go on, the market has traded in recent months on the potential prospects for a peace deal. President Donald Trump’s frequent comments throughout the war about a supposed looming deal with Iran to reopen the strait has had an outsized impact on oil prices – far more than actual physical barrels of oil.
That changed a bit earlier this month when the Houthis bombed the Saudi East-West pipeline, temporarily shutting down roughly 7 million barrels of oil flowing to the Red Sea – more than half of which had been diverted from the Strait of Hormuz. Oil neared $110 a barrel before the Saudis found yet another trick up their sleeves, proving remarkably adaptable to the situation and shifting oil back through the Strait of Hormuz.
Meanwhile, satellite imagery from Sunday showed all seven berths open at two key ports in Yanbu and Al Muajjiz on Saudi Arabia’s West Coast, signaling that the East-West pipeline has ramped back up, according to Kpler.
So, can these volumes be sustained?
“Higher crossings should not be mistaken for improved safety – rather, they reflect the industry’s increasing ability to operate under sustained risk,” Kaneva said Tuesday.
For example, she noted that insurance costs remain astronomically high. Insurers are currently valuing the largest class of 5- to 10-year-old oil tankers at $150 million, even though it costs $135 million to build a new one.
Iran, unable to get its own oil through the strait because of a US naval blockade, and losing its key source of economic leverage, has ramped up its attacks on oil tankers transiting the Gulf.
“Not surprisingly, attacks on tankers have become more common as Iran looks to deter transits,” Smith noted. “We should expect this to persist as Iran seeks to regain its grip on the strait.”
So the oil market remains at an impasse: an increasingly taxing US military effort keeping up an unsustainable status quo that continues to keep prices high for businesses and consumers.
Iran has lost considerable leverage in the Strait of Hormuz. It can’t go on like this forever Egypt Independent.
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