When U.S. President Donald Trump said that he would open the Strait of Hormuz, what he evidently meant was that the United States would promote the kinds of shady practices that animate the “shadow fleets” of Russia, Iran, and Venezuela. Many of the ships now getting in or out of Hormuz are doing so in the dark, with their transponders off. That’s so that they can avoid detection by Iran, which takes potshots at what it considers to be rogue vessels and charges tolls on others.
Which means that the Strait of Hormuz is not quite as closed as the world thought it was. It is far from fully open, though.
When U.S. President Donald Trump said that he would open the Strait of Hormuz, what he evidently meant was that the United States would promote the kinds of shady practices that animate the “shadow fleets” of Russia, Iran, and Venezuela. Many of the ships now getting in or out of Hormuz are doing so in the dark, with their transponders off. That’s so that they can avoid detection by Iran, which takes potshots at what it considers to be rogue vessels and charges tolls on others.
Which means that the Strait of Hormuz is not quite as closed as the world thought it was. It is far from fully open, though.
Scores of ships, including lots of oil tankers, have moved through the strait in recent days under the watchful eye of the U.S. Navy, hewing to an unconventional route that skirts the Omani coast rather than sticking to the traditional route in the middle or the toll booth that Tehran has installed on the northern bank. That is one reason why oil prices have stayed roughly in the $90 range rather than spiking, as Trump himself said, even as global oil inventories dwindle and the shortfalls from 100 days of war pile up.
What is harder to explain is that oil prices remained restrained even as Trump ramped up threats of renewed hostilities against Iran, including the seizure of its oil industry. (He walked the threats back just a few hours later.)
The threat of renewed war notwithstanding, recent days have seen reports of tenders for increased oil exports from countries such as the United Arab Emirates (UAE) and Iraq, which suggests that some oil is making its way out of the Persian Gulf. Trump said that the U.S. operation had allowed 100 million barrels of oil to slip through the Iranian cordon, which would amount to about 2.5 million barrels a day since the start of May, or about one-sixth of the prewar total. It’s a start, but it is not back to business as usual.
“We’re nowhere close to being there yet,” said Gregory Brew, an Iran analyst at Eurasia Group. “There’s always been scope for ships to sneak out, but 2 [million] to 3 million barrels a day is probably the ceiling.”
The quasi-opening of the strait has all happened very quickly, even if it has apparently been in motion for weeks behind the scenes. Last week, Bloomberg News reported that U.S. Central Command had watched about 1,000 ships transit the strait in the past two months, a much higher number than the 600-odd transits that maritime trackers had tallied. While some maritime trackers use satellite imagery, many rely on automatic identification system transponders to track ship movements, and most vessels doing legitimate business have their transponders on.
What seems to have been happening is that some of the stranded ships, including tankers, have begun slipping out of the Persian Gulf with cargoes of oil taken out of storage from countries such as Iraq and Kuwait. It’s not Iranian oil that is getting out so much—Iran’s exports are down to below 250,000 barrels a day—but rather some crude from other big OPEC members. Essentially, stranded ships are using the breakdown lane to get out of a monumental traffic jam—not a sustainable solution, but an understandable one.
“It’s still early days, but expect some kind of recovery. It’s baby steps for now,” said Samir Mandani, the co-founder of TankerTrackers.com.
Clearly, some oil is getting out of the Gulf. ADNOC, the UAE’s state oil firm, recently issued its second tender for oil sales in a week. Kuwait, too, is tendering oil products for one of the first times since the U.S.-Iran war began. Most of the actual exports are apparently done through ship-to-ship transfers outside the Persian Gulf, so that the tankers that carry crude from inside the Gulf can scurry back and reload. That is also a technique more familiar to pirate fleets, such as Russia’s and Iran’s.
The problem, though, is that the exports that are getting out are coming out of storage, not new production—that remains halted and probably will for months.
This is a “robbing Peter to pay Paul” situation. A few more million barrels a day keeps oil prices from the triple digits. But not if it’s coming out of savings. Just as an example, one of the countries most insulated from the energy shock of the Iran war—the country that started it—is starting to count its pennies.
The United States is running down its oil stocks in an alarming way, S&P Global said on Thursday. It’s not a problem just yet, but it could be. The U.S. inventories of oil stored in the heartland of refining country are running low. The United States is down to about 325 million barrels in the places where it makes those barrels valuable. That is not good.
Dipping further “would likely signal entry in a ‘danger zone’ for the U.S. refining system,” said Aaron Brady, the executive director of energy and oil market services at S&P, in a note.
In any event, it’s interesting that the U.S. Navy is working overtime to ensure that one-sixth of prewar oil flows makes it out of the strait. That may not be sustainable, especially given Trump’s on-again, off-again threats. But it seems to be working for now, at least.
This post is part of FP’s ongoing coverage. Read more here.
