Hormuz Workarounds Keep Gulf Oil Flowing—at a Steep Cost

After Houthi strikes in Yemen damaged Saudi Arabia’s East-West pipeline earlier this month, Middle Eastern oil exporters have leaned heavily on pipelines that bypass the Strait of Hormuz where available, and on ship-to-ship (STS) transfers in the Gulf of Oman. These measures have become the primary export route for much of the region’s crude, replacing the direct tanker loads through Hormuz that previously carried about 20 million barrels per day before late February.

The East-West pipeline had been moving roughly 4 million barrels per day across Saudi Arabia to the Red Sea port of Yanbu before the drone attacks forced a shutdown. Saudi Arabia briefly reversed flows to route crude back toward the Persian Gulf and rely more on Hormuz shipments and STS operations; when the pipeline was reported restored this week, oil prices dropped sharply, underscoring how market sentiment hinges on the operational status of regional infrastructure.

STS transfers now commonly take place in the Gulf of Oman, outside the Strait of Hormuz. The maneuver uses smaller vessels to shuttle crude to larger tankers anchored for the long-haul leg, a method previously used by sanctioned producers. While feasible, STS and the diversion of cargoes raise logistical costs: freight on the benchmark Middle East-to-China route has surged to as much as 25% of total delivered cost, with very large crude carrier (VLCC) freight rates reaching about $30 per barrel—an all-time high—reflecting elevated shipping risk and a shortage of willing supertanker owners.

Those higher transport costs have prompted exporters to offer discounts on their crude; the effect is particularly acute for countries like Iraq that have limited alternatives to Hormuz. Still, traders appear to be accommodating the lower export throughput. Kpler data cited by Reuters shows averages of roughly 6.5 million barrels per day via the Strait of Hormuz since the start of the month, down markedly from pre-conflict levels but sufficient, for now, to keep markets relatively calm. The United Arab Emirates has managed to increase its loadings this month to an estimated 3.6 million barrels per day versus 3.4 million the prior year, helped by using smaller vessels for STS transfers.

The region’s adjustments highlight a longer-term reality: exporters can reroute volumes and employ alternative shipping practices to sustain flows, but at higher cost and with persistent supply-chain vulnerabilities. Market reactions to infrastructure developments—such as the East-West pipeline restart—show how sensitive prices remain to perceived changes in export capacity, even as official loadings from ports like Yanbu remain constrained.