The fitful reopening of the Strait of Hormuz is under way, and is beginning to have a meaningful impact on oil markets, according to Vortexa. But renewed disruption from the Iranian side means that there are no guarantees.
The consultancy says that petroleum is beginning to exit Hormuz at a rate of up to 20 million barrels per day (on the busiest day yet), equivalent to prewar volumes. The movements will mean additional barrels arriving in the Asian market, which has already adapted, thanks to a combination of alternative sourcing, run cuts, reserve drawdowns and demand destruction.
“Asian refineries are already well supplied till August, and the prompt barrels released from the Strait of Hormuz simply push the balances to an overhang, without China picking up on demand,” Sparta senior analyst June Goh told Bloomberg on Thursday.
The volume is coming from the UAE (first and foremost) and the other GCC states. While Iranian volumes are quite high, the majority of the recovery comes from Iran’s neighbors, Vortexa says.
The new outflows are putting downwards pressure on Brent crude oil pricing and upward pressure on freight rates, at least for now. The uncertain factor is the state of play in negotiations between Vice President J.D. Vance’s team and the IRGC-dominated government of Iran. The security situation remains unstable: despite earlier assurances of free passage, the IRGC Navy has rejected the newly-created, neutral IMO corridor through the Strait of Hormuz; it followed up yesterday with a new drone attack on the Taiwanese-operated boxship Ever Lovely, the first since the signing of the ceasefire MOU.
President Donald Trump said Friday that the attack involved four attack drones, one of which hit the deckhouse of a “large and very expensive cargo carrying ship.” He claimed that U.S. forces downed the other three drones.
“Obviously, this is a foolish violation of our ceasefire agreement,” he said. It is the first time that the president has claimed a ceasefire violation, but for now, the president has not threatened retaliatory strikes.
Iran has been issuing warnings to other vessels to reverse course, and some have been obeying. The QatarEnergy-affiliated LNG carriers Umm Slal and Gaslog Shanghai both turned around and went out of the strait on June 25, adding to a growing list of ships that decided not to risk an Iranian strike. Transits continue at a rate higher than before the MOU, but the IMO has temporarily suspended its outbound transit plan, and masters (and owners) are making individual decisions about how or whether to proceed.
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“It should not have come as a surprise that any attempt to challenge what Tehran now considers the new reality [of Iranian control of the strait] would trigger an Iranian response. From Iran’s perspective, the rules of the game have changed,” commented former Israeli Defense Intelligence senior analyst Danny Citrinowicz. “The administration now faces three choices: recognize this new reality and incorporate it into diplomacy, ignore it and risk repeated crises, or return to military confrontation in an attempt to reverse it.”
Top image courtesy VesselFinder
