Hormuz blockade enters seventh month: oil flows but at soaring cost

A high-cost ship-to-ship (STS) transfer system is barely sustaining global energy supplies as the Strait of Hormuz enters its seventh month of blockade. Whether this emergency mechanism is a transitional arrangement or a new normal remains unclear.

Exports Rebound, but at a Steep Price

According to Kpler data, exports through the Strait of Hormuz have recovered to approximately 6.5 million barrels per day since September—the highest level since a brief ceasefire rebound in June. However, this volume comes at an unprecedented logistical cost.

Data from LSEG (Refinitiv) shows that the benchmark freight rate for Very Large Crude Carriers (VLCCs) transporting Gulf crude to China has surged to over $30 per barrel—the highest on record. Before the conflict, freight costs accounted for only 2% to 3% of the oil price. At current oil prices of around $105 per barrel, shipping costs now exceed one-quarter of total costs. Last week, Brent crude briefly broke through $108 per barrel, partly driven by news of disrupted Saudi export routes.

The energy market is adapting rather than collapsing—but the cost of this adaptation is being borne by producers, the shipping market, and global consumers alike.

How the Floating Transfer Chain Works

The blockade of the Strait of Hormuz has forced oil-producing countries to redesign their export routes. Abu Dhabi National Oil Company (ADNOC) launched the STS solution as early as April: vessels are used as "shuttle tankers" to transport crude from Gulf terminals to safer waters in the Gulf of Oman, where cargo is transferred to larger ships bound for destinations—typically Asian refineries. The mother ships then return through Hormuz to reload, repeating the cycle.

This mechanism reduces the risk of vessels crossing the Strait by shortening individual voyages, while maximizing the use of limited and expensive tanker capacity, allowing some key exports to continue. An increasing number of tankers are now crossing the Strait under U.S. Navy escort, with navigation systems turned off, using a narrow corridor along the Omani coastline.

Saudi Arabia Follows Suit, Scale Expands Rapidly

What began as an ADNOC-led emergency solution has evolved into a sizable new industry, with Saudi Aramco increasingly relying on STS transfers to maintain exports.

This shift is driven by urgent circumstances: Yemen's Iran-backed Houthi forces have recently intensified their control over the southern Red Sea's Bab el-Mandeb Strait. On September 10, Iran-backed militias in Iraq attacked Saudi Arabia's East-West pipeline, cutting off approximately 4% of global supply that had been flowing to international markets via the Red Sea port of Yanbu. Under pressure from both sides, Saudi Arabia began informing buyers that it would switch to STS transfers via the Oman route to maintain deliveries.

The scale of this change is clear from the data. According to Kpler, STS transfer loadings in the Gulf of Oman are expected to reach approximately 2.5 million barrels per day in September, up sharply from 1.4 million barrels per day in August. This accounts for about 40% of current flows through the Strait of Hormuz. Before the conflict, STS transfers were almost never used. In comparison, the UAE's September oil exports are expected to reach 3.6 million barrels per day, up from an average of 3.4 million barrels per day in 2025.

Wealth Shifts from Producers to Ship Owners

This floating logistics network has, to some extent, prevented a more severe supply shock, but its costs have severely distorted market structures.

The direct consequence of surging freight rates is the erosion of producer profits. Oil-producing countries have been forced to offer larger discounts on their crude prices to maintain export competitiveness, effectively absorbing part of the soaring transportation costs. Meanwhile, the heavy demand for tankers in Gulf STS transfers has further tightened global available capacity, pushing overall freight rates higher.

"We are witnessing the largest transfer of wealth from oil producers to tanker owners in history," said Keshav Lokhiya, CEO of HiLo Analytics.

Structural Fragility Beneath the Adaptation

The global energy market is adapting to the current highly tense geopolitical risks rather than grinding to a halt—this much is certain. However, Middle Eastern oil trade is becoming increasingly inefficient, relying on an ad hoc emergency system cobbled together from military escorts, temporary transfer nodes, and alternative shipping routes never designed to handle such volumes.

Every additional transfer means more vessels, longer transit times, and higher costs—pressures that ultimately converge on the global oil market. The longer the conflict persists and the more shipping routes come under threat, the more expensive and fragile this global energy system becomes.