Iran-U.S. Tanker War Opens a New Global Oil Risk: Moving the Barrels
By Shahnoor Saqib | SCN NEWS
The latest confrontation between Iran and the United States is producing striking images of burning tankers, missile exchanges and even the capture of an American autonomous underwater vehicle near the Strait of Hormuz. But for the world economy, the most consequential development may be less dramatic: the Middle East still possesses enormous quantities of oil, yet moving those barrels safely from producers to consumers is becoming increasingly difficult. Iran said it attacked 10 ships after U.S. forces struck five Iranian oil tankers, in what Reuters described as the biggest declared wave of tit-for-tat shipping attacks since the six-month war began. At least one seafarer was killed and another was missing, while Brent crude pushed through $100 a barrel for the first time since July.
That distinction between oil availability and oil mobility is increasingly important. Vitol chief executive Russell Hardy said roughly 9 million barrels per day of crude and another 1 million barrels of refined products have recently been exported from the Middle East, compared with roughly 20 million barrels of crude and products before the Iran war began on February 28. That means substantial supply is still moving, but nowhere near normal volumes. The risk confronting the market is therefore not necessarily that Middle Eastern oil suddenly disappears underground; it is that military operations, damaged vessels, insurance risk, crew safety concerns and restricted waterways progressively reduce the industry's ability to transport available supply.
The Strait of Hormuz illustrates the problem. Preliminary Kpler data showed only six commodity vessels transited the strait on Tuesday with tracking systems operating, down from nine a day earlier and below the recent 10-day average of about 12. Some vessels may transit with their AIS transponders switched off, so those figures do not represent the complete flow, but the contraction is unmistakable. The International Maritime Organization says around 20,000 seafarers, port workers and offshore personnel have been affected by conditions around Hormuz and has highlighted both the global trade disruption and the human risk facing crews.
The latest attacks make that commercial calculation more difficult. Iran said it struck ships near Hormuz after Washington destroyed Iranian crude carriers; merchant vessels were subsequently reported damaged across waters near several Gulf states. The products tanker Hercules Star was hit while anchored off Dubai, killing one seafarer and leaving another missing, while the New Andros, carrying about 2 million barrels of fuel oil, caught fire after being struck by a drone in Iraqi waters, according to Iraqi port officials cited by Reuters. The UK Maritime Trade Operations agency also received reports of merchant vessels being hit by disabling fire in the northern Gulf and Gulf of Oman.
That changes the economics even before a chokepoint is formally closed. A tanker owner deciding whether to enter a conflict zone must consider the value of the vessel and cargo, insurance availability, war-risk premiums and — most importantly — the safety of its crew. Insurers must decide whether the premium charged can compensate for the possibility that a civilian ship will be hit. Refiners thousands of miles away must determine whether a cargo contracted for delivery will arrive when expected. Each decision can reduce effective oil supply without a single producing well being shut down.
This helps explain why $100 oil may be better understood as a warning than as the crisis itself. Brent rose above $100 on Wednesday, while U.S. gasoline reached about $4.22 a gallon and diesel $5.94, according to AP. Bank of America analysts cited by AP said oil could temporarily spike as high as $150 if significant energy infrastructure were damaged. Yet prices have not risen as violently as might be expected from the headlines because oil continues to leave the region and markets still expect producers, inventories and alternative routes to absorb part of the disruption.
The danger is what happens if that assumption weakens. The Middle East does possess alternatives to Hormuz, including pipelines capable of moving some Saudi and Emirati crude toward ports outside the strait. But they cannot effortlessly replace every barrel normally carried through Gulf waters, and the alternative western route faces its own security complication: Iran-aligned Houthis have resumed attacks on Saudi targets while traffic through the Bab el-Mandeb remains another source of concern. Preliminary Kpler figures showed 25 commodity vessels passing Bab el-Mandeb on Tuesday, close to its recent 10-day average of around 27, meaning the route remains functional for now.
The captured American underwater drone adds another dimension, but not primarily because of the hardware itself. Iran's Revolutionary Guards said they captured a Dive-LD autonomous underwater vehicle at the entrance to Hormuz. The Pentagon acknowledged losing the drone but said it had malfunctioned more than a day earlier while surveying regional waters and contained neither classified sonar or radar equipment nor sensitive collected data. Manufacturer Anduril described Dive-LD as an “attritable” platform — equipment designed to perform dangerous missions where losing individual vehicles is an anticipated possibility.
Its significance instead lies in what the drone was doing there. Dive-LD-type systems can conduct seabed mapping, mine countermeasures, surveillance and inspection of underwater infrastructure such as cables and pipelines. The U.S. military's deployment of autonomous underwater systems around Hormuz demonstrates how the contest over this waterway now extends beneath the surface as well as across it. Washington needs persistent surveillance without exposing sailors unnecessarily; Tehran wants to demonstrate that American monitoring and control of the approaches to Hormuz can itself be challenged.
For the world economy, however, the underwater contest matters only insofar as it affects confidence that Hormuz can remain navigable. Oil markets ultimately care less about who possesses one $2.5 million autonomous vehicle than whether millions of barrels can cross the Gulf every day. The same applies to individual tanker attacks: destroying one vessel does not transform global supply, but repeated attacks can change the behaviour of dozens of shipowners simultaneously. That behavioural response is where a military confrontation becomes an economic shock.
The consequences then spread well beyond petrol stations. Expensive crude raises refinery costs; expensive diesel raises trucking, agriculture and industrial costs; expensive jet fuel raises airline costs; and higher freight and insurance charges feed into internationally traded goods. Reuters reported Wednesday that the broader market environment was already reviving inflation concerns and expectations that major central banks may have less room to ease monetary policy. An oil-shipping shock therefore risks arriving not merely as an energy problem but as a new inflation constraint on governments and central banks.
There is also an uncomfortable asymmetry in the emerging confrontation. Washington can destroy Iranian oil carriers to impose an economic cost on Tehran after attacks on American forces. Iran, however, does not necessarily have to destroy an equivalent number of U.S. tankers to impose costs on Washington. If attacks make international operators reluctant to enter Gulf waters, the resulting scarcity and higher oil prices are transmitted globally. The economic battlefield consequently becomes much larger than the military one.
This is why the latest events should not automatically be described as the beginning of an unstoppable escalation. Neither the capture of one underwater drone nor the destruction of another group of tankers proves that Hormuz is about to become completely impassable. Oil continues to move, Bab el-Mandeb remains active and the market has so far adapted sufficiently to prevent prices from approaching the extremes feared earlier in the conflict.
But they expose another challenge for oil. For decades, global energy security focused heavily on whether producers had enough reserves and spare production capacity. The current conflict is demonstrating that having oil in the ground is only the first half of energy security. The second is possessing ships, crews, insurance, ports and secure waterways capable of delivering it.
The next global oil shock therefore does not require the Middle East to run out of oil. It requires only enough tankers to stop taking the risk of carrying it.