I’m not going to mince words here. This article is not meant to be an in-depth write-up. I had previously planned to write up the oil math needed to get production shut-in to return, but after two tankers were attacked on the Oman route, it is clear that the Oman lane will be heavily contested in the coming days/weeks.
For those of you not familiar with the oil math from the start, I will just do a quick recap.
Following the Iran conflict, there are two bypasses:
East-West pipeline: 7 million b/d, 4 million b/d of export capacity in Yanbu.
Abu Dhabi pipeline: 1.8 million b/d.
During the month of May, UAE started doing shadow transits which boosted crude exports to ~4 million b/d in June. Fujairah is now exporting majority of the oil for Kuwait, Iraq, and Saudi through ship-to-ship.
The issue here is that the Oman route is estimated to handle 6-8 million b/d of crude inflow and outflow. Since June 17, Energy Aspects estimates that 150 million bbls have exited the Strait of Hormuz. This equates to a flow of ~8 million b/d. Including bypasses, this puts flow at ~13 million b/d, still ~5 million b/d short of pre-conflict levels. The other 2 million b/d is associated with Iran, which is also having difficulty getting tankers to return to load crude. It first needs to offload the crude, wait for the tankers to come back, and then gradually restart production.
Now that tensions are rising again in the Oman lane, any assumption that the Strait of Hormuz traffic flow will return to normal is just wishful thinking. As I soberingly explained in my piece on June 23 titled, “The Strait Of Hormuz Isn’t Going Back To The Way It Was.” We aren’t going back.
Either Iran controls the Strait of Hormuz or it doesn’t. There’s no in-between.